Case Law Details
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,
- The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following conditions, namely:-
(a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; or
(b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.
(emphasis supplied)
4. The relevant facts can be noted:
The respondent is engaged interalia in the manufacture of Heat Exchangers, Pressure Vessels and Boilers, classifiable under Chapter 84 of the First Schedule to Central Excise Tariff Act,1985. The respondent claimed benefit of exemption under items at Sr. Nos. 7, 8, 19 and 21 of the Notification No.64/1995-CE, in respect of goods supplied to the Department of Space, Government of India and Indian Space Research Organization, and under Sr.No.1 of Notification No.10/1997-CE dated 9 March 1997 in respect of supplies made to Public Funded Research Institutions / Universities. The respondent maintains separate account in respect of the inputs used in the manufacture of exempted goods. The respondent contends that it does not take any credit of duty paid on such inputs.
5. The case of the department is to the effect that during the course of an audit of the respondent, it was revealed that the respondent had availed and utilized service tax credit of common services like Chartered Accountant, cleaning activity, courier agency, event management, outdoor caterer, on-line information and telecommunication services, also the respondent’s PAC unit registered as a Input Service Distributor has distributed service tax credit on Advertising Agent’s Service, Commercial Coaching Services, Courier services, Online information & Database Access Service, Photography Services, Rent-a‑cab services, telecommunication Services, Tour operator’s services, External Borrowings etc. among other input and input services.
6. 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 (for short ‘CCR,2004’) as also that the respondent had not followed the procedure specified in sub-rule (3A) of Rule 6 of the CCR 2004.
7. 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. On this being pointed out to the respondent, the respondent worked out and paid an amount of Rs.1,40,47,798/- in terms of the provisions of Rule 6(3A)(c)(iii) of the CCR, 2004 and interest of Rs.17,49,730/- for the period from 1 April 2008 to 31 December 2010 payable thereon.
8. On the above conspectus, a show cause notice dated 3 May 2011 was issued to the respondent by the Commissioner of Central Excise as to why –
(i) the amount of Rs. 32,39,35,223/-(Rupees Thirty Two Crores Thirty Nine Lakhs Thirty Five Thousand Two Hundred Twenty Three only) payable in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2004 prior to 1 April 2008 and Rule 6(3)(i) of the Cenvat Credit Rules, 2004 w.e.f. 1 April 2008 as mentioned above should not be demanded and recovered from them under proviso to Section 11 A(1) of Central Excise Act, 1944;
(ii) the amount of Rs.1,22,98,068/(Rupees One Crore twenty two lakh ninety eight thousand sixty eight Only) paid by the assessee under Rule 6(3A)(c)(iii) of Cenvat Credit Rules, 2004 should not be appropriated against the above mentioned amount of Rs.32,39,35,223/- payable under Rule 6(3)(b) of Cenvat Credit Rules, 2004 prior to 1 April 2008 and Rule 6(3)(i) of Cenvat Credit Rules, 2004 w.e.f. 1 April 2008;
(iii) appropriate interest in terms of Section 11 AB of Central Excise Act, 1944 should not be demanded and recovered on t Rules, 2004 for contravention of Rule 6(3)(b) of the Cenvat Credit Rules, 2004 prior to 1 April 2008 and Rule 6(3) (i) of the Cenvat Credit Rules, 2004 w.e.f. 1 April 2008.
9. The respondent submitted its reply dated 8 July 2011 to the show cause notice, interalia contending that the respondent had correctly availed the Cenvat credit in respect of service tax paid on the common inputs and input services pertaining to exempted goods, and that there was no suppression of facts to evade payment of duty by intentionally availing wrong Cenvat credit. It was contended that the respondent was maintaining projectwise record of purchases and input services and that they had reversed Cenvat credit in proportion of turnover of excisable and exempted goods.
10. After hearing on the show cause notice, the Commissioner of Central Excise passed an order-in-original dated 31 January 2012 whereby the Commissioner confirmed the show cause notice in terms of the following order:-
(a) confirmed the amount of Rs.32,39,35,223/- allegedly payable in terms of Rule 6(3)(b) of the Cenvat Credit Rules,2004 prior to 04.2008 and Rule 6(3)(i) of the Cenvat Credit Rules,2004 with effect from 01.04.2008 under Rule 14 of the Cenvat Credit Rules,2004 and with Section 11A(2) of the Central Excise Act,1 944;
(b) Appropriated the amount of Rs.1,22,98,068/- paid by the Appellant against the above mentioned confirmed amount of 32,39,35,223/-;
(c) Ordered the recovery of interest under Rule 14 of the Cenvat Credit Rules,2004 read with Section 11 AB of the Central Excise Act,1 944;
(d) Appropriated the amount of Rs.17,49,730/- paid by the Appellant against the interest payable on Rs.32,39,35,223/- under Rule 14 of the Cenvat Credit Rules,2004 read with Section 11 AB of the Central Excise Act,1 944 and ordered recovery of the remaining interest payable;
(e) Imposed a penalty of Rs.32,39,35,223/- under Rule 15 of the Cenvat Credit Rules,2004 read with Section 11 AC of the Central Excise Act, 1944.”
11. Thus, the Commissioner interalia held that the respondent availed and utilized the Cenvat Credit on input services, which were used/consumed in or in relation to the dutiable as well as exempted goods, however, the respondent had not maintained separate accounts for receipt, consumption and inventory or input service meant for use in the manufacture of dutiable final products or in providing output service. It was also held that the respondent had not followed or opted for procedure set out under sub-rule 3A of Rule 6 of the CCR,2004. There was no denial by the respondent that the respondent was required to pay the amounts in terms of Rule 6(3)(b) / Rule 6(3)(i) of the CCR,2004. It was held that the very act of proportionate reversal of Cenvat Credit established that the respondent had not maintained separate account, and had such account been maintained, the question of availment of Cenvat Credit on such inputs / input services and their subsequent reversal would not have arisen. Further, that the reversal of the credit was only for the period from 1 April 2008 to 31 December 2010 and not for the complete period under the impugned show cause notice i.e. the period prior to 1 April 2008. Also the respondent had not submitted any application to the Commissioner of Central Excise, opting to pay the amount in accordance with the provisions as amended by the Finance Act, 2010. The dispute was in respect of a period April, 2006 to December, 2010 which has arisen on 3 March 2008 and it was not confined to the period enumerated under the Schedule to Section 73 of the Finance Act,2010 and in this view of the matter the amendments / provisions of the said section were not applicable in the instant case.
12. The respondent reversed the credit of Rs. 1,28,63,305/- along with interest of Rs. 87,31,339/- for the period 2006-07 and 2007-08 on 17 February 2012 towards the input service tax credit availed by the appellant on the common input invoices in proportion to the exempted turnover as per the following details:
| Period | Service Tax credit reversed | Interest paid |
| 2006-2007 | Rs.94,47,011 | Rs.67,59,172 |
| 2007-2008 | Rs.34,1 6,294 | Rs.1 9,72,167 |
| Total | Rs.1 ,28,63,3 05 | Rs.87,31 ,339 |
13. In pursuance to such reversal, the respondent by its letter dated 20 February, 2012, intimated to the revenue such facts as also enclosed a copy of e-receipt for payment of interest and proof of reversal of cenvat credit. It was also informed by the respondent that during the period 2008-09 to 2010-11 (upto December 2010) the respondent had already reversed Rs.1,22,98,068/- toward the input service tax credit availed by the respondent on the common input services in proportion to the exempted turnover along with the interest payment of Rs.17,49,730/-.
14. However, the respondent being aggrieved by the order-in-original dated 31 January 2012, filed an appeal under Section 35B of the Central Excise Act, 1944, before the CESTAT, interalia on the ground that the order-in-original was without jurisdiction and untenable. It was contended by the respondent that the demand of an amount equal to 10 / 5 percent of exempted goods under Rule 6(3)(b) of CCR, 2004, was ex facie, erroneous and untenable, as the respondent had not taken credit of service tax paid on input services, used in the manufacture of exempted goods and excluded common input service and had fully complied with Rule 6(2) of the CCR,2004. It was contended that the respondent had maintained separate account and not taken credit of common inputs used in or in relation to the manufacture of goods cleared under exemption. The respondent also contended that there was no requirement under Rule 6(2) of the CCR 2004 to take the credit of input services used in the manufacture of dutiable goods to maintain separate account of receipt, consumption and inventory of input services. It was contended that thus the only requirement was not to use the credit in the manufacture of exempted goods. The respondent also contended that the appellant had not taken the credit of disputed common input services to the extent used in the exempted goods. It is contended that it was a settled principle of law as laid down by the Supreme Court in CCE, Mumbai vs. Bombay Dyeing and Manufacturing Company Ltd.1 that reversal of credit before utilization would amount to not taking of the credit. It is hence contended that in any event the respondent was not liable to pay an amount equal to 10% of the value of the exempted goods in view of Section 73 of the Finance Act, 2010. There were several other grounds as raised by the respondent before the CESTAT.
15. The CESTAT by the impugned order has allowed the respondent’s appeal by interpreting Rule 6 as it stood prior to its amendment in the year 2007-2008, and post amendment as amended in the year 2008. The CESTAT has observed that as per the provisions of Rule 6 of the CCR 2004 as amended from time to time in case of common input / input services used for manufacture of both exempted and dutiable goods, the respondent had reversed the entire amount of proportionate credit along with interest due in respect of the period 1 April 2008 to 31 December 2012 even prior to issuance of a show cause notice, and in respect of the period prior to 1 April 2008, as per the provisions of Rule 6 the respondent was required to pay 10% of the value of the exempted goods, if it was not in a position to maintain separately account in respect of inputs / input services used for manufacturing of exempted and dutiable goods. In that regard, it was observed that as held by the Supreme Court in Union of India & Ors. vs. Hindustan Zinc Ltd.2, the benefit of proportionate reversal was extended from retrospective effect, in cases where common inputs/ input services were used for manufacture of dutiable and exempted products and thus, there was nothing illegal in the respondent having subsequently paid / reverse the entire amount of proportionate credit for the period 2006-07, 2007-08 along with interest at the rate of 24%, and on such reasoning set aside the order-in-original.
16. In assailing the impugned order and in the context of the question of law as raised, the revenue has limited submissions. On behalf of the revenue, it is contended that Rule 6 of the CCR 2004 was retrospectively amended vide the Finance Act, 2010, and that the amended provisions were made applicable with effect from 10 September 2004 to 31 March 2008 (both days inclusive) only to such manufacturers in whose case the disputes were pending as on the day the Finance Bill, 2010 was enacted i.e. 8 May 2010. It is submitted that in the present case, the Show Cause Notice was issued on 3 May 2011, therefore the provisions of Section 73 of the Finance Bill, 2010 were not applicable to the assessee, as there was no dispute pending on the date of the enactment of the Finance Bill,2010 and for such reason the CESTAT was also not right in holding that the amendment to Rule 6 of CCR,2004 was applicable in the present case. It is next submitted that the CESTAT was not correct in observing that merely because the assessee has reversed the cenvat credit amounting to Rs. 1,22,98,068/- and interest of Rs.17,49,730/- for the period 1 April 2008 to 31 December 2010 in proportion of turnover of excisable and exempted goods with respect to the service tax credit received and therefore was not required to maintain separate accounts of inputs or to follow procedure and conditions as contemplated under Rule 6 (3A) of the CCR,2004, and that too after lapse of considerable time from the clearance of the exempted goods. It is next submitted that the CESTAT could not have come to a conclusion that an option was with the assessee under 6(3A) of the CCR,2004 either to maintain separate accounts in respect of the common inputs and input services used for manufacture of exempted and dutiable goods and taxable and exempted service under Rule 6(2) or reverse the proportionate cenvat credit in respect of the inputs and input services as per Rule 6(3)(ii) or reverse the cenvat credit at the rate of 5% (earlier 10%) of value of exempted goods (Rule 6(3)(i)) more particularly as CESTAT did not take into consideration the finding of Commissioner that the provisions of Rule 6(3A) (c) (iii) of the CCR,2004 were not applicable in the case of the assessee as they never followed the procedure and conditions laid down in Rule 6(3A) of the CCR, 2004.
17. On the other hand, learned Counsel for the assessee has supported the impugned decision. He submits that the findings as recorded by the CESTAT are on appropriate interpretation of Rule 6 of the CCR,2004 as amended from time to time and as applicable in the facts of the present case. It is submitted that the CESTAT has appropriately held that the respondent had appropriately reversed the entire amount of proportionate credit along with interest in respect of the period from 1 April 2008 to 31 December 2010, as also in respect of the period prior to 1 April 2008, the respondent was permitted the benefit of proportionate reversal with retrospective effect, as rightly accepted by the CESTAT on interpretation of the amendment as brought about to Rule 6 (3A) of the CCR,2004 by the Finance Act,2010.
18. We have heard learned Counsel for the parties and with their assistance we have perused the record.
19. At the outset we may note that the periods subject matter of the show cause notice in question are the periods beginning with 10 September 2004 till 31 March 2008 and the subsequent period post 1 April 2008 upto 31 December
20. As seen from the foregoing paragraphs, the controversy revolves around the applicability of Rule 6 of the CCR 2004 as amended from time to time.
21. Rule 6 of the CCR, 2004 provides for an obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. It interalia provides that the Cenvat Credit is not allowed on such input or input services which are used in manufacture of exempted goods or exempted services except in the circumstances mentioned in sub-rule (2). The condition in sub-rule (2) being where a 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 maintain separate accounts for –
(a) the receipt, consumption and inventory of inputs used
(i) in or in relation to the manufacture of exempted goods;
(ii) in or in relation to the manufacture of dutiable final products excluding exempted goods;
(iii) for the provision of exempted services;
(iv) for the provision of output services excluding exempted services; and for
(b) the receipt and use of input services
(i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal;
(ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal;
(iii) for the provision for exempted services; and
(iv) for the provision of output services excluding exempted services, and shall take Cenvat Credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b). Sub-rule (3) of Rule 6 provides that notwithstanding anything contained in sub-rule (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the conditions as applicable to him, as set out in sub-rule (3) namely :-
(a) if the goods as set out in clause (a) are exempted goods, 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
(b) if the exempted goods are other than those described in the aforesaid condition (a), the manufacturer shall pay an amount equal to 10% 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, and (c) the provider of output service shall utilize credit only to extent of any amount not exceeding 20% of the amount of service tax payable on taxable output service.
22. Rule 6, however, underwent an amendment in the year 2006, 2007 and in the year 2008. It is relevant to note the amendment as brought about to sub-rule (3) and incorporation of Rule 3A as extracted by us above.
23. It is clearly seen from the reading of sub Rule (3A) of Rule 6 which was introduced for determination of payment of amount payable under clause (ii) of sub-rule (3), that the manufacturer of goods or the provider of output service shall follow the procedure and conditions as set out therein. Further Rule 6 was retrospectively amended by the Finance Act,201 0 which enabled the respondent to make adjustment, namely, that even if the respondent failed to maintain a separate account, in view of the retrospective amendment, it was entitled to reverse the proportionate cenvat credit or option of paying an amount equal to 10% on exempted goods, and that could not have been enforced on the assessee.
24. Now coming to the facts of the case, it is clear from the record and as rightly observed by the CESTAT that under Rule 6 of the CCR,2004, as amended from time to time, in case of common input services used for manufacture of both exempted and dutiable goods, the respondent had three options available, firstly, to maintain separate accounts in respect of the common inputs and input services used for manufacture of exempted & dutiable goods and taxable and exempted service (Rule 6 (2)); or secondly, to reverse the proportionate Cenvat credit in respect of the inputs and input services used for proving exempted goods and exempted services, by following the procedure as prescribed by Rule 6(3)(ii); or thirdly, to reverse the Cenvat credit at the rate of 5% (earlier 10%) of value of exempted goods under Rule 6 (3)(i) as amended from 1 April 2008.
25. It is clear 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. The respondent had paid / reversed the entire amount of proportionate credit for the period 2006-07 and 2007-08 along with interest at the rate of 24%.
26. Insofar as the period from 1 April 2008 to 31 December 2010 is concerned, even prior to issuance of a show cause notice, the respondent had reversed the entire amount of proportionate credit along with interest due in respect of the said period namely an amount of Rs.1,22,98,068/- plus Rs.17,49,730/-. Insofar as the revenue’s contention in assailing the impugned order passed by the CESTAT is concerned, we are not persuaded to accept such contention that the amendment as brought about to Rule 6 by the Finance Bill,2010 was applicable in the case where the show cause notice was issued and/or pending on the date on which it was received assent by the President. Thus, what was imperative was not issuance of a show cause notice but the pendency of dispute relating to adjustment of credit of input used or exemption on final product relating to the period beginning from 10 September 2004 and ending on 31 March 2008 (both days inclusive), being the pending date on which the Finance Bill received assent of the President. It is rightly observed by the CESTAT that when for such period the dispute has arisen only in such event, a show cause notice was issued and hence, the case of the respondent for the period 2007-08 was covered by the amendment made by way of insertion of sub-rule (7) of Rule 6 of CCR,2004 by the 2010 Amendment.
27. This apart, we find that the respondent would be correct in its contention when it submits that in a similar situation the Division Bench of this Court on applicability of Rule 6 had held against the revenue and in favour of the assessee in the case of Commissioner of Central Excise, Mumbai Vs. IVP Ltd.3 as also in the case of Commissioner of Central Excise Vs. Nicholas Priamal Ltd4.
28. In IVP Ltd. (supra) the Court has made the following observations:-
“5. The findings essentially are of the fact. However, only one question which was projected as a substantial question of law, now appears to be concluded against the Revenue on account of the retrospective amendment and which is incorporated in the Finance Act, 2010. The Finance Act, 2010 makes an amendment of Rule 6 of Cenvat Credit Rules, 2002. The Central Government, in exercise of powers conferred by Section 37 of the Central Excise Act, published a Notification in the Official Gazette dated 1st March, 2002. Rule 6 was amended and is deemed to have been amended retrospectively, in the manner provided in column (3) of the Seventh Schedule, on and from and up to the corresponding date specified in column (4) of that Schedule, against the rule specified in column (2) of that Schedule. The amendment, therefore, enables the dealer to make these adjustments. The respondent-assessee, even if it had failed to maintain a separate account in view of the retrospective amendment, it was entitled to reverse proportionate Cenvat Credit. The option of paying an amount equal to 10% sale value of exempted goods, therefore, could not have been enforced on the assessee. That is how consistently even the Tribunals and the High Courts namely, the High Court of Karnataka at Bangalore, the High Court of Judicature at Madras and the High Court of Gujarat at Ahmedabad, have all understood and interpreted this provision. In such circumstances and even while these matters were brought to our notice, a Division Bench in the case of Central Excise Appeal No.13 8 of 2005, decided on 17th October, 2016 [2017 (349) E. L. T. 33 (Bom.)] took up the same issue and held that these substantial questions of law would not survive. They would have to be answered against the Revenue and in favour of the assessee. That is how they stand answered even in this matter. The Revenue’s appeal is accordingly dismissed.”
29. In Nicholas Piramal Ltd. (supra) the Division Bench has observed thus:-
5. The Revenue had approached this Court in the further appeal, which came to be admitted. In the meanwhile, the Division Bench of this Court, in the case of M/s Pira mal Healthcare Ltd. V. Commissioner Central Excise – Central Excise Appeal No. 9 of 2009, passed an order on 14th August, 2009 as modified on 27th November, 2009. The Court held that the assessee is liable to pay amount equal to 8% or 10% of the total price of the exempted goods as per Rule 6(3)(b) of the Cenvat Credit Rules, 2002. This rule was amended retrospectively by Finance Act of 2010. The Commissioner of Central Excise has given effect to this rule. The assessee sought a review of the order passed by this Court by filing Review Petition No. 34 of 2010. That was decided on 14th March, 2012.
6. It is now clear from the order passed in the review petition, copy of which is at pages 13 to 15 of the compilation read with the further documents in that compilation read with the further documents in that compilation, that the arrangement carved out by the assessee has been accepted by the Revenue. In these circumstances, we do not think that the substantial questions of law, on which the appeal was admitted, survive any longer. They stand answered against the Revenue in terms of the order passed by this Court and the earlier orders of the The appeal is, therefore, dismissed. There would be no order as to costs.
30. In the light of the above observations, we answer the question in favour of the assessee and against the revenue. We accordingly dismissed the appeal. No costs.
Notes
1 2007 (215) E.L.T. 3 (S.C.)
2 2014(303) ELT 321 (S.C.)
3 2017 (349) ELT 18 (Bom)
4 2017 (349) ELT 33 (Bom.)
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