The Hon’ble CESTAT, New Delhi in the case of M/s National Steel & Agro Industries Limited v. Principal commissioner [Final Order Nos. 51518-51519/2021 decided on May 25, 2021] quashed the demand under Rule 6(3)(i) of the CENVAT Credit Rules, 2004 (the CCR) as the assessee has followed Rule 6(2) of the CCR and maintained separate records and not taken credit on inputs/input services used for exempt services i.e., trading. Further, held that nothing in the CCR prohibits an assessee from following Rule 6(2) of the CCR in respect of the inputs and input services where it is feasible to maintain separate records and follow Rule 6(3A) of the CCR in case of such inputs or input services where it is not feasible to do so.
M/s National Steel & Agro Industries Limited (“the Appellant”) is engaged in manufacturing of CR coils, CR galvanized sheets, CR galvanized color coated coils, etc. and has been discharging Central Excise duty on the manufactured goods. The Appellant avails CENVAT credit of duty paid on inputs and service tax paid on input services under the CCR.
The Department felt that the Appellant availed inadmissible credit on input services used for exempted services, viz., trading of goods and issued Show Cause Notice dated March 27, 2018 (“SCN 1”) demanding payment of an amount of Rs. 13,84,44,474/- for the Financial year 2015- 2016 under Rule 6(3)(i) of CCR. This demand was partly confirmed by the Principal Commissioner (“the Respondent”) to the tune of Rs. 6,21,72,263/- vide Order-in-Original dated February 22, 2019 (“Impugned OIO 1”).
Another Show Cause Notice dated March 18, 2019 (“SCN 2”) was issued for period April 2016 to June 2017 demanding an amount of Rs. 21,35,06,000/- under Rule 6(3)(i) of CCR. This demand was also partly confirmed by the Respondent to the tune of Rs. 7,57,07,862/- Order-in-Original dated November 20, 2019 (“Impugned OIO 2”).
Both the Impugned OIO 1 and OIO 2 were confirmed on the ground that the computation of the reversal of credit on account of exempted services was incorrect.
The Hon’ble CESTAT, New Delhi in Final Order Nos. 51518-51519/2021 decided on May 25, 2021 held as under:
Rule 6(2) of the CCR (during the period from April 2016 to June 2017)
“(2) A manufacturer who exclusively manufactures exempted goods for their clearance upto the place of removal or a service provider who exclusively provides exempted services shall pay the whole amount of credit of input and input services and shall, in effect, not be eligible for credit of any inputs and input services.”
Rule 6(3A)(B) of the CCR (during the period from April 2016 to June 2017)
“6. Obligation of a manufacturer or producer of final products and a provider of output service-
(3A) For determination of amount required to be paid 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-
(b) the manufacturer of final products or the provider of output service shall determine the credit required to be paid, out of this total credit of inputs and input services taken during the month, denoted as T, in the following sequential steps and provisionally pay every month, the amounts determined under sub-clauses (i) and (iv), namely :-
(i) the amount of CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services shall be called ineligible credit, denoted as A, and shall be paid;
(ii) the amount of CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of non-exempted goods removed or for the provision of non- exempted services shall be called eligible credit, denoted as B, and shall not be required to be paid; (iii) credit left after attribution of credit under sub-clauses (i) and (ii) shall be called common credit, denoted as C and calculated as,-
C = T – (A + B);
Explanation. – Where the entire credit has been attributed under sub-clauses (i) and (ii), namely ineligible credit or eligible credit, there shall be left no common credit for further attribution.
(iv) the amount of common credit attributable towards exempted goods removed or for provision of exempted services shall be called ineligible common credit, denoted as D and calculated as follows and shall be paid, –
D = (E/F) x C;
where E is the sum total of –
(a) value of exempted services provided; and
(b) value of exempted goods removed, during the preceding financial year;
where F is the sum total of –
(a) value of non-exempted services provided,
(b) value of exempted services provided,
(c) value of non-exempted goods removed, and
(d) value of exempted goods removed, during the preceding financial year”
Explanation 1(c) under Rule 6 of the CCR (during the period from April 2016 to June 2017)
“Explanation I. – “Value” for the purpose of sub-rules (3) and (3A), –
(c) in case of trading, shall be the difference between the sale price and the cost of goods sold(determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent. of the cost of goods sold, whichever is more;”
Rule 6(3A)(c)(iii) of the CCR(during the Financial year 2016-16)
“(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance upto the place of removal or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial year;”
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