Reversal of proportionate Cenvat credit in respect of exempted goods – CESTAT directs readjudication

Allied Instruments Pvt Ltd Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)

Adjudicating Authority has confirmed demand of 5%/ 10%, in terms of Rule 6(3) of Cenvat Credit Rules, 2004 on the ground that appellant have initially availed Cenvat credit in respect of common input service used for exempted and dutiable goods and not maintained separate records therefore, the appellant is liable to pay 5%/ 10% amount. We find that on the basis of various judgments, it has now been settled that if the appellant have not availed Cenvat credit in respect of input service used in exempted goods and if at all the same is availed and subsequently reversed proportionate credit, the assessee is not required to pay 5%/ 10%. At the most, the appellant is liable to pay interest from the date of taking credit till the date of reversal. However, the Adjudicating Authority has not verified that proportionate reversal of the credit or non availment of credit of input service attributed to the exempted goods. Accordingly, we are of the view that if it is found that the appellant has availed Cenvat credit against input service attributed to the exempted goods and reversed along with interest or Cenvat credit attributed to exempted goods was not availed, the appellant is prima-facie not liable to pay 5%/ 10% of the value of exempted goods. Accordingly, all the matters are required to be reconsidered after ascertaining the fact whether the appellant have correctly not taken the credit or reversed the credit in respect of input service attributed to the exempted goods and thereafter pass a reasoned order.

Accordingly, we set-aside the impugned orders and remand the matter to the Adjudicating Authority to pass a fresh order keeping in mind our above observations.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The issue involved in the present case is whether the appellant is liable to pay 5%/ 10% of the value of exempted goods due to the reason that appellant have not maintained proper separate record of common input service used in the dutiable and exempted final products as per Rule 6 of Cenvat Credit Rules, 2004.

2. Shri Amal Dave, learned Counsel appearing on behalf of the appellant, at the outset submits that in respect of Appeal No. E/10463/2015, the appellant have reversed proportionate Cenvat credit and in respect of other appeals, the appellant have not taken credit in respect of inputs attributed to exempted goods and credit was taken only for dutiable goods. Therefore, in all the appeals, the appellant is not required to pay 5%/ 10% of the value of exempted goods. He placed reliance on the following judgments:-

(a) CESTAT Ahmedabad final order No. A/12475/2021 dated 10.202 1 in case of – M/s. Sanstar Bio Polymers Limited.

(b) 2019(29) GSTL 36.1 (Tri.-Ahmd.) – Bombay Minerals Ltd. vs. CCE, Rajkot

(c) 2019(368) ELT 179 (Tri.-Ahmd.) – Welspun Corp. Ltd. vs. CCE, Kutch

(d) CESTAT Ahmedabad Final order No. A/12299/2021 dated 02/04.08.2 1 in case of M/s. P&B Pharmaceuticals Limited.

(d) 2009(234) ELT 431 (Guj.) – CCE, Ahd-II vs. Maize Products

(e) 2011(263) ELT 661 (Guj.) – CCE vs. Maan Pharmaceuticals Ltd.

3. Shri G. Kirupanandan, learned Superintendent (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.

4. On careful consideration of the submissions made by both the sides and perusal of record, we find that Adjudicating Authority has confirmed demand of 5%/ 10%, in terms of Rule 6(3) of Cenvat Credit Rules, 2004 on the ground that appellant have initially availed Cenvat credit in respect of common input service used for exempted and dutiable goods and not maintained separate records therefore, the appellant is liable to pay 5%/ 10% amount. We find that on the basis of various judgments, it has now been settled that if the appellant have not availed Cenvat credit in respect of input service used in exempted goods and if at all the same is availed and subsequently reversed proportionate credit, the assessee is not required to pay 5%/ 10%. At the most, the appellant is liable to pay interest from the date of taking credit till the date of reversal. However, the Adjudicating Authority has not verified that proportionate reversal of the credit or non availment of credit of input service attributed to the exempted goods. Accordingly, we are of the view that if it is found that the appellant has availed Cenvat credit against input service attributed to the exempted goods and reversed along with interest or Cenvat credit attributed to exempted goods was not availed, the appellant is prima-facie not liable to pay 5%/ 10% of the value of exempted goods. Accordingly, all the matters are required to be reconsidered after ascertaining the fact whether the appellant have correctly not taken the credit or reversed the credit in respect of input service attributed to the exempted goods and thereafter pass a reasoned order.

5. Accordingly, we set-aside the impugned orders and remand the matter to the Adjudicating Authority to pass a fresh order keeping in mind our above observations. Appeals are allowed by way of remand to the Adjudicating Authority.