Rule 6(3A) proportionately divide the credit taken on common input services and credit attributable to exempted service was denied

National Steel & Agro Industries Limited Vs Principal Commissioner, Central Goods (CESTAT Delhi)

Rule 6(3A) proportionately divide the credit taken on common input services and credit attributable to exempted service was denied

Conclusion: Rule 6(3A) can only be used to only proportionately divide the credit taken on common input services and deny credit to the extent it is attributable to the exempted service viz., trading. The adjudicating authority had erred in taking the total turnover of traded goods as the value of trading service instead of following Explanation 1(c) to Rule 6 to calculate the value of trading service and it had also erred in reckoning the total credit taken instead of credit on common input services in calculating the amount of credit required to be reversed.

Held: Assessee-company had manufactured CR coils, CR galvanized sheets, CR galvanized color coated coils, etc., falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act, 1985 and had been discharging Central Excise duty on the manufactured goods. It also traded in similar sheets. It availed CENVAT credit of duty paid on inputs and service tax paid on input services under the provisions of CENVAT Credit Rules, 2004. In the present appeals, assessee had taken no credit on inputs or input services used exclusively for exempted services and had taken credit only on the inputs and input services used in manufacture of dutiable goods. The only dispute was regarding the credit on common input services used in their headquarters which was transferred to the field units through ISD invoices. This credit could not be attributed wholly to either the dutiable goods manufactured or the exempted service rendered viz., trading. This should therefore, be apportioned. Adjudicating Authority, therefore, erred in taking the total credit taken (including credit taken on inputs and input services used exclusively for manufacture of dutiable goods) to calculate the amount of CENVAT credit that must be reversed under Rule 6(3A). For the period April 2016 to June 2017, this was clearly, against the explicit rule position as laid down in Rule 6(3A)(b). It was held since assessee had followed Rule 6(2) and had not taken any CENVAT credit on the input services which were used exclusively for providing exempted services, the formula under Rule 6(3A) can only be used to only proportionately divide the credit taken on common input services and deny credit to the extent it is attributable to the exempted service viz., trading during the periods relevant to both appeals, viz., 2015-16 and April 2016 to June 2017. To sum up, the main basis on which the demands were raised in both the Show Cause Notices had already been dropped by the adjudicating authority since assessee had reversed proportionate amount of credit attributable to exempted services. The adjudicating authority had erred in (a) taking the total turnover of traded goods as the value of trading service instead of following Explanation 1(c) to Rule 6 to calculate the value of trading service; the adjudicating authority has erred in reckoning the total credit taken instead of credit on common input services in calculating the amount of credit required to be reversed. The impugned orders, therefore, could not be sustained.

FULL TEXT OF THE CESTAT DELHI ORDER

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