Pr. Commissioner of CGST and Central Appellant Excise Vs Larsen & Toubro Limited (HED) (Bombay High Court)
Bombay High Court held that even if the assessee has failed to maintain a separate account it was entitled to reverse proportionate Cenvat Credit. The option of paying an amount equal to 10% of the value of exempted goods could not have been enforced on the assessee.
Facts- The controversy in the present appeal revolves around the purport and applicability of Rule 6 of the Cenvat Credit Rules, 2004 under which the duty demand was raised against the respondent. Rule 6 provides for obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.
It is the Department’s case that the respondent had manufactured dutiable excisable goods as well as exempted goods, consuming common Cenvated inputs and input services as also had maintained separate accounts in respect of raw materials i.e. inputs consumed in excisable and exempted goods, however, it had not maintained separate accounts in respect of input services used / consumed in or in relation to manufacture of excisable and exempted finished goods as required in terms of Rule 6(2) of Cenvat Credit Rules, 2004 as also that the respondent had not followed the procedure specified in sub-rule (3A) of Rule 6 of the CCR 2004.
According to the Department, prior to 1 April 2008 as per the provisions of Rule 6(3) of the CCR,2004 and under Rule 6(3)(i) of the CCR,2004 with effect from 1 April 2008, where the manufacturer or the provider of output services, opts not to maintain separate records for excisable and exempted goods, shall pay an amount equal to 5% (10% prior to 7 July 2009) of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product, charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.
Conclusion- Held that the respondent was not maintaining separate account in respect of input services used by it, hence, the available option for the respondent was to reverse the proportionate cenvat credit as applicable either under Rule 6(3)(i) or Rule 6(3)(ii). It is also clear that the benefit of reversing the proportionate credit was extended with retrospective effect in cases where common input and input services were used for dutiable and exempted products. This permitted the respondent to proportionately reverse the credit attributable to input / input services used for manufacture of exempted goods, in a case where common inputs or input services were used for manufacture of both dutiable and exempted goods.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. This appeal under Section 35G of the Central Excise Act,1944 (for short “CE Act”) arises from an order dated 28 August 2019 passed by the Customs, Excise & Service Tax Appellate Tribunal, Mumbai, Regional Bench (for short “CESTAT”), whereby the respondent’s appeal being Excise Appeal No.525 of 2012 arising out of the order-in-original dated 31January 2012 passed by the Commissioner of Central Excise, Mumbai-II, has been allowed.
2. The appellant / revenue in assailing the judgment of the CESTAT has although raised four questions of law, as fairly agreed by the parties, we confine the adjudication of the present appeal on the following substantial question of law:-
“A. Whether in the facts and circumstances of the case the CSTAT was right in holding that the amendment to Rule 6 of the CENVAT Credit Rules,2004 retrospectively amended by the Finance Act,201 0, was applicable in the present case in the light of the provisions of Section 73 of the Finance Act,2010 ?”
3. The controversy in the present appeal revolves around the purport and applicability of Rule 6 of the Cenvat Credit Rules, 2004 (for short ‘CCR,2004’) under which the duty demand was raised against the respondent. Rule 6 provides for obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. At the outset, it would be necessary to note Rule 6 of the CCR,2004 as it stood prior to its amendment in the year 2008 and post the amendment in the year 2008 which reads thus:-
“Rule 6 prior to 2008 amendment
6. Obligation of a manufacturer of dutiable and exempted goods and provider of taxable and exempted services.
(1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in sub-rule (2):
[Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.]
(2) Where or manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services [***] and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall separate accounts for receipt, consumption and inventory of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.
(3) Notwithstanding anything contained in sub-rules (1) and (2) the manufacturer or the provider of output service, opting not to maintain separate accounts, shall follow either of the following conditions, as applicable to him, namely:-
(a) if the exempted goods are‑
(i) goods falling within [heading 2207] of the First Schedule to the Excise Tariff Act (hereinafter in this rule referred to as the said First Schedule);
(ii) Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity
(iii) Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer;
(iv) Naphtha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity;
(v) [newsprint, in rolls, sheets or reels, falling within Chapter 48] of the said First Schedule;
(vi) final products falling within Chapters 50 to 63 of the said First Schedule;
(vii) goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the Ministry of Finance (Department of Revenue), namely:-
(1) 70/92-Central Excise, dated the 17th June, 1992, G.S.R. 595(E), dated the 17th June, 1992;
(2) 62/95-Central Excise, dated the 16th March, 1995, G.S.R. 254(E), dated the 16th March, 1995;
(3) 63/95-Central Excise, dated the 16th March, 1995, G.S.R. 255(E), dated the 16th March, 1995;
(4) 64/95-Central Excise, dated the 16th March, 1995, G.S.R. 256(E), dated the 16th March, 1995;
[(viii) Liquefied Petroleum Gases (LPG) falling under tariff items 2711 12 00, 2711 13 00 and 2711 19 00 of the said First Schedules]
(ix) Kerosene falling within heading 2710 of the said First Schedule, for ultimate sale through public distribution system,] the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of such final products at the time of their clearance from the Factory; or
(a) if the exempted goods are other than those described in condition
(b), the manufacturer shall pay an amount equal to ten per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory;
(c) the provider of output service shall utilize credit only to extent of an amount not exceeding twenty per cent of the amount of service tax payable on taxable output service.
Explanation I.— The amount mentioned in conditions (a) and (b) shall be paid by the manufacturer or provider of output service by debiting the CENVAT credit or otherwise.
Explanation II.—If the manufacturer or provider of output service fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 14, for recovery of CENVAT credit wrongly taken;
[(d) notwithstanding anything contained in condition (c), the provider of output service referred to in sub-clause (d) of clause (105) of section 65 of the Finance Act has the option to utilise CENVAT credit attributable to inputs and input services used in providing taxable services subject to the following, namely:-
(i) while exercising the option under this condition, the provider of output service Shall intimate his option in writing to the Superintendent of Central Excise giving the following particulars, namely: —
(a) name and address of the provider of output service;
(b) date from which the option under this clause is exercised or proposed to be exercised;
(c) description of taxable services;
(d) description of exempted services;
(e) CENVAT credit of inputs and input services lying in balance as
on the date of exercising the option under this condition;
(ii) the option given under part (i) for a financial year shall not be
withdrawn during the remaining part of the financial year;
(iii) the provider of output service shall,-
(a) determine, provisionally, the amount equivalent to CENVAT credit attributable to exempted services, in the following manner, namely:- CENVAT credit attributable to exempted services (provisional) = (A/B) multiplied by C, where A denotes total value of exempted services provided during the preceding financial year, B denotes total value of taxable and exempted services provided during the preceding financial year, and C denotes total CENVAT credit of inputs and input services taken during the month;
(b) pay the amount attributable to exempted services determined as above or each month, on or before 5th day of the following month;
(c) determine the CENVAT credit attributable to exempted services for the whole financial year in the following manner, namely:-
CENVAT credit attributable to exempted services =(X/Y) multiplied by: Z, where X denotes total value of exempted services provided during the Financial year, Y denotes total value of taxable and exempted services provided during the financial year, and Z denotes total CENVAT credit of inputs and input services taken during the financial year;
(d ) pay an amount equal to the difference between the amount determined: as per item (c) and the amount determined as per item (a), on or before the 30th June of the succeeding financial year, where the amount determined as per item (c) is more than the amount paid;
(e) in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four per cent per annum from the due date,i.e., 30th June till ‘the date of payment, where the amount short-paid is not paid within the said due date;
(f) where the amount determined as per item (c) is less than the amount determined and paid as per item (a), adjust the excess amount on his own, by taking credit of such amount;
iv) the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of such payment or adjustment, the following particulars, namely:
(a) details of CENVAT credit attributable to exempted services, month wise, for the whole financial year, determined provisionally as per part (iii) item (a),
(b) the amount equivalent to CENVAT credit attributable to exempted services, determined provisionally for each month and paid rnonthwise as per part (iii) item (b),
(c) CENVAT credit attributable to exempted services for the whole financial year as, determined as per part (iii) item (c),
(d) amount short paid determined as per part (iii) item (d), along with the date of payment of the amount short paid,
(e) interest payable and paid, if any, on the amount short paid, determined as per part (iii) item (e), and
(f) credit taken on account of excess payment, if any, determined as per part (iii) item (f);
(v) where the amount equivalent to CENVAT credit attributable: to exempted services cannot be determined provisionally since no taxable service referred to it sub-clause (d) of clause (105) of section 65 of the Finance Act has been provided, the provider of output service is not required to determine, provisionally, and pay CENVAT credit attributable to exempted services for each month but he shall determine the CENVAT credit attributable to exempted services for the whole year as prescribed in part (iii) item (c) and pay the amount so calculated on or before 30th June of the succeeding financial year;
(vi) where the amount determined under part (v) is not paid within the said due date i.e. the 30th June, the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of twenty-four per cent per annum from the due date till the date of payment]
[Explanation III—For the removal of doubts, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or exempted services.]
(4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.
(5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clauses (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted
(6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either‑
(i) cleared to a unit in a special economic zone; or
(ii) cleared to a hundred per cent export-oriented undertaking; or
Rule 6 Post Amendment in the year 2008
6. Obligation of a manufacturer of dutiable and exempted goods
and provider of taxable and exempted services.
6.(1) The CENVAT credit shall not be allowed on such quantity of input or input service which used in the manufacture of exempted goods or [for provision of] exempted services, except in the circumstances mention in sub-rule (2):
[Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.
(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services [***] and manufacturers such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input or input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.
[(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options as applicable to him, namely:-
(i )the manufacturer of goods shall pay an amount equal to ten per cent of value of the exempted goods and the provider of output service shall pay an amount equal to eight per cent of value of the exempted services; or
(ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A).
Explanation I.- the manufacturer of goods or the provider of output. service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.
Explanation II.- For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service.
(3A) For determination and payment of amount payable under clause
(ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :-
(a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :-
(i) name, address and registration No. of the manufacturer of goods or provider of output service;
(ii) date from which the option under this clause is exercised or proposed to be exercised;
(iii) description of dutiable goods or taxable services;
(iv) description of exempted goods or exempted services;
(v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition;
(b) the manufacturer of goods or the provider of output service shall,
determine and pay, provisionally, for every month, –
(i) the amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, denoted as A;
(ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services (provisional)= (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the proceeding financial year and D denotes total CENVAT credit taken on inputs during the month minus A;
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the preceding financial year, and G denotes total CENVAT credit taken on input services during the month;
(c) the manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit attributable to exempted goods and exempted services for the whole financial year in the following manner, namely :-
(i) the amount of CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, on the basis of total quantity of inputs used in or in relation to manufacture of said exempted goods, denoted as H;
(ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services = (J/K) multiplied by L, where J denotes the total value of exempted services provided during the financial year, K denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the financial year and L denotes total CENVAT credit taken on inputs during the financial year minus H;
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods provision of exempted services = (M/N) multiplied by P, where L denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, M denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and N denotes total CENVAT credit taken on input services during the financial year;
(d) the manufacturer of goods or the provider of output service, shall pay an amount equal to the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than the amount paid;
(e) the manufacturer of goods or the provider of output service, shall, in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four per cent per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date;
(F) where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount;
(g) the manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per condition (d) and (f) respectively, the following particulars, namely :-
(i) details of CENVAT credit attributable to exempted goods and exempted services, month wise, for the whole financial year, determined provisionally as per condition (b),
(ii) CENVAT credit attributable to exempted goods and exempted services for the whole financial year, determined as per condition (c),
(iii)amount short paid determined as per condition (d), along with the date of payment of the amount short-paid,
(iv) interest payable and paid, if any, on the amount short-paid, determined as per condition (e), and
(v) credit taken on account of excess payment, if any, determined as per condition (f);
(h) where the amount equivalent to CENVAT credit attributable to exempted goods or exempted services cannot be determined provisionally, as prescribed in condition (b), due to reasons that no dutiable goods were manufactured and no taxable service was provided in the preceding financial year, then the manufacturer of goods or the provider of output service is not required to determine and pay such amount provisionally for each month, but shall determine the CENVAT credit attributable to exempted goods or exempted services for the whole year as prescribed in condition (c) and pay the amount so calculated on or before 30th June of the succeeding financial year.
(i) where the amount determined under condition (h) is not paid within the said due date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of twenty four per cent per annum from the due date till the date of payment.
Explanation I. – “Value” for the purpose of sub-rules (3) and (3A) shall have the same meaning assigned to it under section 67 of the Finance Act, 1994 read with rules made thereunder or, as the case may be, the value determined under section 4 or 4A of the Central Excise Act, 1994 read with rules made thereunder.
Explanation II. – The amount mentioned in sub-rules (3), (3A), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March.
Explanation III. – If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3) or as the case may be sub-rule (3A), it shall be recovered, in the manner as provided in rule 14, for recovery of
CENVAT credit wrongly taken.]
(4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the fina products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.
(5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clauses (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to tha manufacture of exempted goods or providing exempted
(6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either‑
(i) cleared to a unit in a special economic zone; or
(ii) cleared to a hundred per cent export-oriented undertaking; or
(iii) cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park;
(iv) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India the Ministry of Finance (department of Revenue) No.108/95- Central Excise, dated the 28th August, 1995, number G.S.R. 602(E), dated the 28th August, 1995; or
(v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or
(vi) gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting [; or] [(vii) all goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under Section 3 of the said Customs Tariff Act when imported into India and supplied against International Competitive Bidding in terms of Notification No. 6/2002-Cnetral Excise, dated the 1st March, 2002 [or Notification No.6/2006-Central Excise, dated the 1st march, 2006, as the case may be].] Manner of distribution of credit by input service distributor,
