Reversal under rule 6(3) of CCR, 2004 doesn’t apply when CENVAT attributable to non-excisable goods not availed

Hindustan Colas Pvt. Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Kolkata)

CESTAT Kolkata held that provisions of rule 6(3) of the CENVAT Credit Rules, 2004 is not applicable when CENVAT Credit attributable to non-excisable goods not availed. Accordingly, demand set aside.

Facts- The Appellant, M/s. Hindustan Colas Pvt. Ltd, manufactures dutiable/ excisable goods such as bitumen emulsion, road bond emulsion etc. The Appellant also produces non excisable products like Crumb Rubber Modified Bitumen (“CRMB”) and Polymer Modified Bitumen (“PMB”).

During the period FY 2013 – 2014 to FY 2017 – 2018 (till June 2017), the Appellant used common inputs (Bitumen VG10, Bitumen VG 30 etc.) and input services (manpower recruitment, legal consultancy, GTA, rent-a-cab, security, courier etc.) for manufacture of dutiable goods as well as for production of non-excisable goods like CRMB and PMB.

For the period up to June 2013, the Appellant availed CENVAT credit and subsequently reversed the credit availed on common input and input services used for production of non-excisable goods in terms of Rule 6(3) of the CENVAT Credit Rules, 2004 and such reversal was shown by the Appellant in its ER-1 returns.

During the course of audit, a spot memo was issued to the Appellant stating that production of CRMB and PMB does not tantamount to “manufacture” therefore, the Appellant should not have availed the CENVAT credit of duty paid on common input and input services used for making CRMB and PMB at the very first instance.

The department issued a Show Cause Notice to the Appellant demanding differential duty of CENVAT credit amounting to Rs. 8,22,43,578/- under Rule 14 of the CENVAT Credit Rules, 2004, along with interest and penalty. The Commissioner confirmed the demand. Being aggrieved, the present appeal is filed.

Conclusion- Held that the Commissioner has not given any reason for rejecting the CA certificate. On the other hand the practice of reversal of credit adopted by the Appellant through their SAP system clearly substantiate their claim that they have not availed the Cenvat credit of common inputs used in the production of non excisable goods that the initial stage itself . They have also reversed the proportionate credit on common input services and indicated in the ER-1 returns. We have no reason to doubt the CA certificate issued in this regard. Rule 6(3) of the CENVAT Credit Rules, 2004 is applicable when Cenvat credit is availed on dutiable and exempted goods and separate records are not maintained. In this case, the Cenvat credit attributable to non-excisable goods are not availed at the initial stage itself. Thus, we hold that Rule 6(3) of the CCR, 2004 is not applicable in this case.

FULL TEXT OF THE CESTAT KOLKATA ORDER

The present appeal has been filed against the Order-in-Original dated 19.05.2021 passed by Commissioner of CGST & C.EX., Haldia. In the impugned order, the Commissioner has confirmed the demand of Rs. 8,22,43,578/-, along with interest and equal amount of tax as penalty.

2. Briefly stated facts of the case are that the Appellant, M/s. Hindustan Colas Pvt. Ltd, manufactures dutiable/ excisable goods such as bitumen emulsion, road bond emulsion etc. The Appellant also produces non excisable products like Crumb Rubber Modified Bitumen (“CRMB”) and Polymer Modified Bitumen (“PMB”). During the period FY 2013 – 2014 to FY 2017 – 2018 (till June 2017), the Appellant used common inputs (Bitumen VG10, Bitumen VG 30 etc.) and input services (manpower recruitment, legal consultancy, GTA, rent-a-cab, security, courier etc.) for manufacture of dutiable goods as well as for production of non-excisable goods like CRMB and PMB.

3. For the period up to June 2013, the Appellant availed CENVAT credit and subsequently reversed the credit availed on common input and input services used for production of non-excisable goods in terms of Rule 6(3) of the CENVAT Credit Rules, 2004 and such reversal was shown by the Appellant in its ER-1 returns. However, during the course of audit, a spot-memo dated 26.07.2013 was issued to the Appellant stating that production of CRMB and PMB does not tantamount to “manufacture” in terms of Section 2(f) of the Central Excise Act, 1944 in view of Supreme Court’s decision in the case of CCE, Bangalore vs. Osnar Chemicals Pvt. Ltd., 2012 (276) ELT 162 (SC), therefore, the Appellant should not have availed the CENVAT credit of duty paid on common input and input services used for making CRMB and PMB at the very first instance. It was further stated that availing and reversal thereof in terms of Rule 6(3) of the CENVAT Credit Rules, 2004 was not correct since Rule 6 is applicable only to non-excisable goods and CRMB and PMB do not fall within the definition of exempted goods. Accepting the Audit objection, the Appellant informed the department vide their letter dated 09.10.2013 that as per their SAP system each time any common input was used for production of CRMB and PMP, proportionate CENVAT credit was automatically computed for reversal. They further informed that for the period up to June 2013, the credit reversed on common inputs was shown in the ER-1 returns, due to the objection raised vide the spot memo, from July 2013 onwards, they have started availing only the net CENVAT credit on inputs (viz. total credit on inputs less common credit attributable to production of CRMB and PMB) in their ER-1 returns. However, as regards the common input services, they continued to show the total credit availed as well as reversals made in ER-1 returns.

4. The department issued a Show Cause Notice to the Appellant demanding differential duty of CENVAT credit amounting to Rs. 8,22,43,578/- under Rule 14 of the CENVAT Credit Rules, 2004, along with interest and penalty. In the Notice it has been alleged that the Appellant has not maintained separate records/accounts as per Rule 6(2) of the CENVAT Credit Rules, 2004 and has incorrectly availed CENVAT credit of the duty paid on common inputs and input services utilized in making non-excisable goods such CRMB and PMB. Accordingly, in terms of Rule 6(3)(ii) read with Rule 6(3A) of the CENVAT Credit Rules, 2004 CENVAT Credit amounting to Rs. 10,08,60,693/- was attributable to production of CRMB and PMB (non-excisable goods). The Appellant’s claim regarding non-availment of CENVAT credit on common inputs was found to be not correct and as per ER-1 returns filed for the aforesaid period it was found that the Appellant had only reversed Rs. 1,86,17,115/-. The Notice was adjudicated by the Commissioner, Haldia vide the impugned order wherein he confirmed the demands made in the Notice on the ground that the fact of reversal/non-availment of credit is not evident from any official record including the ER-1 return of the Appellant and details of SAP software being private records of the Appellant cannot be accepted. Further, the Appellant had submitted a CA certificate from M/s Ford Rhodes Parks and Co LLP certifying that they have not availed credit on inputs and reversed credit on input services. However, the Commissioner has not accepted the Certificated issued by the CA. Being aggrieved with such O-I-O, the Appellant has filed the present appeal.

5. The Appellant submits that they have not availed the amount of CENVAT credit demanded in the impugned order. The amount of CENVAT credit not availed on common inputs used towards production of non-excisable goods is more than amount of CENVAT credit The details regarding such non-availment of CENVAT credit of duty paid on common input used for the purpose of production of CRMB and PMB is as follows:

6. The Appellant submits that the entire process of availment of CENVAT credit of the duty paid on inputs has been automated in their SAP program. Whenever any input was used in the production of non-excisable goods like CRMB or PMB, proportionate credit on such input was automatically not availed by the SAP program. Accordingly, for the period FY 2013-14 to FY 2017-18 till June 2017, they have not availed CENVAT credit amounting to Rs. 13,39,49,749/- towards common inputs. Further, they have submitted a CA certificate from M/s Ford Rhodes Parks and Co LLP certifying that they have not availed credit on inputs used in the production of non-excisable goods and reversed credit on input services. The adjudicating authority has not taken cognizance of the certificate and confirmed the demands made in the Notice, which is legally not sustainable. As they have not availed the Cenvat credit on the common inputs used in the non excisable items, they prayed for setting aside the demands confirmed in the impugned order.

7. The Appellant also submitted that the SCN was issued on 18.04.2018 for the period FY 2013-14 to FY 2017-2018 (up to June 2017), therefore, SCN is partially time barred for the period April 2013 to March 2016. They also submitted that all facts were in the knowledge of the department at all times and hence there is no suppression of facts involved in this case. Accordingly, no penalty imposable in this case.

8. The Ld. A.R. reiterated the findings in the impugned order.

9. Heard both sides and perused the appeal records.

10. We observe that the issue to be decided in the present appeal is whether the Appellant is required to reverse CENVAT credit of duty paid on common inputs used in production of non-excisable goods(CMRB and PMB). The Appellant’s contention is that they have not availed the amount of CENVAT credit as demanded in the impugned order. For the period up to June 2013, they availed CENVAT credit on all inputs and subsequently reversed on common input and input services used for production of non-excisable goods in terms of Rule 6(3) of the CENVAT Credit Rules, 2004. However audit conducted by the department raised an objection to this practice and stated that availing and reversal thereof in terms of Rule 6(3) of the CENVAT Credit Rules, 2004 is not correct since Rule 6 is only applicable to non-excisable goods and CRMB and PMB do not fall within the definition of exempted goods. Accepting the Audit objection, the Appellant informed the department vide their letter dated 09.10.2013 that as per their SAP system each time any common input was used for production of CRMB and PMP, proportionate CENVAT credit was automatically computed for reversal. From July 2013 onwards, they have started availing only the net CENVAT credit on inputs (viz. total credit on inputs less common credit attributable to production of CRMB and PMB) and indicated it in their ER-1 returns. The Appellant had submitted a CA certificate from M/s Ford Rhodes Parks and Co LLP certifying that they have not availed credit on inputs and reversed credit on input services.

11. We observe that after June 2013, when audit raised an objection, the Appellant changed their practice and stopped availing credit at the initial stage itself. This has been done through their SAP system wherein each time any common input was used for production of CRMB and PMP, the SAP system automatically compute proportionate CENVAT credit for reversal. They have started availing only the net CENVAT credit on inputs (viz. total credit on inputs less common credit attributable to production of CRMB and PMB). We find that the Commissioner’s observation that SAP system is a private record of the Appellant and hence it is not acceptable is not a valid ground to reject the Appellant’s claim. In face, there is on officially prescribed records now. All the records maintained by the Appellant are acceptable as valid documentary evidences. We also find that the Appellant’s claim has been confirmed by a CA certificate from M/s Ford Rhodes Parks and Co LLP who has certified that the Appellant had not availed credit on inputs and reversed credit on input services. We find that the Commissioner has not given any reason for rejecting the CA certificate. On the other hand the practice of reversal of credit adopted by the Appellant through their SAP system clearly substantiate their claim that they have not availed the Cenvat credit of common inputs used in the production of non excisable goods that the initial stage itself . They have also reversed the proportionate credit on common input services and indicated in the ER-1 returns. We have no reason to doubt the CA certificate issued in this regard. Rule 6(3) of the CENVAT Credit Rules, 2004 is applicable when Cenvat credit is availed on dutiable and exempted goods and separate records are not maintained. In this case, the Cenvat credit attributable to non-excisable goods are not availed at the initial stage itself. Thus, we hold that Rule 6(3) of the CCR, 2004 is not applicable in this case.

12. Further, we find that the Appellant has not availed CENVAT credit amounting to Rs. 13,39,49,749/- towards common inputs, whereas the demand confirmed in the impugned order is only Rs.8,22,43,578/-, which is much less than the amount of Cenvat credit not availed. Accordingly, we hold that the demand confirmed in the impugned order is not sustainable and hence we set aside the same. Since, the demand itself is not sustainable there is no question of demanding interest or imposing penalty.

13. In view of the above discussion, we set aside the impugned order and allow the appeal filed by the Appellant.

(Dictated and pronounced in the open Court)