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CENVAT credit foregone is compliance of Rule 6(3) of CENVAT credit rules

In view of the retrospective amendment introduced by Finance Act, 2010, the appellant were entitled to reverse the proportionate cenvat credit attributable to the quantum of input services used in or in relation to manufacture of exempted final product and by foregoing this credit

Brief Facts

The appellant is manufacturer of pharmaceuticals products. The period of dispute is from May, 2007 to March 2008. During this period, the appellant were using various common input services in or in relation to the manufacture of dutiable final product as well as exempted final products.

However, they were not taking the cenvat credit in respect of these input services in proportion to the turnover of the exempted final product. During the period of dispute, they were foregoing the cenvat credit in respect of the common input services to the extent of 70%, based on the ratio of the turnover of dutiable and exempted final product during the previous financial year.

The Department was of the view that since separate account and inventory of the input services meant for dutiable final product and exempted final product had not been maintained as per the provisions of Rule 6(2) of Cenvat Credit Rules, 2004, the provisions of Rule 6(3)(b) would become applicable. It is on this basis that after issue of Show Cause Notice, the Commissioner in his order held that in respect of clearances of the exempted final products, the appellant in accordance with the provisions of Rule 6(3)(b) of Cenvat Credit Rule, 2004 would be liable to pay an amount equal to 10% of the sale price of the goods.

Contention of the Assessee

The appellant pleaded that w.e.f. 01.03.2008 Rule 6(3A) was amended and this amendment gave an additional option to the manufactures of dutiable and exempted final product, using common cenvat credit availed input/ input services and this additional option was to reverse the proportionate cenvat credit in respect of inputs/ inputs services used in or in relation to manufacture of exempted final product which was determined as per the provision of Rule 6(3A) that by Finance Act 2010, the provisions regarding reversal of proportionate credit was made retrospectively applicable, that since, the appellant have not taken the proportionate credit in respect of the input services used in or in relation to the manufacture of exempted final products, the option of paying 10% of the sale value of the final product cannot be forced upon them.

The appellant relied on the judgement of Hon’ble Gujarat High Court in case of Sh. Rama Multitech Ltd vs UOI reported in 2011 (267) ELT 153 Guj wherein it was held that in view of retrospective amendment to Rule 6(3) by Finance Act, 2010, even when the separate accounts of the input/ input services meant for dutiable and exempted final product were not maintained, the manufacture is entitled to reverse proportionate credit.

This stand of the Department would not be correct in view of retrospective amendment to Rule 6(3) by Finance Act, 2010, which gives the manufacture an additional option of reversal of the proportionate cenvat credit attributable to the exempted final product, that when the appellant have already foregone the proportionate credit attributable to the exempted final product, the provisions of Rule 6(3) read with rule 6(2) stands complied with and hence, the amount equal to 10% of the sale value of the final product cannot be demanded from them.

Contention of the Revenue

Revenue defended the impugned order by reiterating the findings of the Commissioner in it. Revenue relied upon the judgment of Hon’ble Bombay High Court in case of CCE Thane-I vs Nicholas Piramal (India) Ltd. reported in 2009 (244) ELT 321 (Bom.) wherein it has been held that provisions regarding reversal of the proportionate credit introduced in Rule 6(3) w.e.f. 01.04.2008 is not applicable for the past period.

Held by the Hon’ble CESTAT

The Bench of Hon’ble CESTAT is of the view that Rule 6(3) had been amended to give an additional option to a manufacture manufacturing dutiable as well as exempting final product by using common cenvat credit availed input/ input services and this additional option was to reverse the proportionate cenvat credit attributable to input/ input services used in or in relation to manufacture of exempted final product. The proportionate amount of cenvat credit attributable to the input/ input services used in or in relation to manufacture of exempted final product was to be calculated as per the formula prescribed in Rule 6(3A).

By Finance Act, 2010, the above provisions were made retrospectively applicable. The bench relied on the judement of Hon ble Gujarat High Court in case of Sh. Rama Multitech Ltd. vs UOI reported in 2011 (267) ELT 153 Guj.

In view of this position, during the period of dispute the option of paying an amount equal to 10% of the sale value of the exempted goods cannot be forced upon the appellant and the appellant would be entitled to reverse the cenvat credit attributable to the inputs/ input services used in or in relation to the manufacture of the exempted final product. Once, the appellant have foregone the proportionate cenvat credit in respect of input services used in or in relation of the manufacture of exempted final product, they have to be treated as complied with the provisions of sub Rule (3) of Rule 6 and hence, there cannot be any demand of amount under Rule 6(3)(b).

The bench further iterated that the judgment of Hon ble Bombay High Court in case of CCE Thane-I vs. Nicholas Piramal (India) Ltd.(Supra) is of the period when the retrospective amendment to Rule 6(3) by Finance Act, 2010 had not been made and hence, this judgment of Hon ble High Court is not applicable to the facts of this case.

In view of the retrospective amendment introduced by Finance Act, 2010, the appellant were entitled to reverse the proportionate cenvat credit attributable to the quantum of input services used in or in relation to manufacture of exempted final product and by foregoing this credit, they have complied with this obligation. In view of this, the appeal is allowed.

Categories: Excise Duty

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