By TIOL News Service

MUMBAI, JULY 28, 2015: A demand of Rs. 24,71,93,529/- was confirmed against the appellant by CCE, Pune-I along with equivalent penalty etc.

The reason -

+ The appellant is engaged in the manufacture of motor vehicles and are also engaged in the trading activity of similar goods alongwith their motor vehicle in the same premises. In case of trading activity, the appellant imports cars directly from Daimler Chrysler, Germany.

+ They maintained a common balance sheet for their manufacturing as well as trading activity. The appellant availed Cenvat credit on inputs and input services used in relation to the manufacture of finished goods.

+ Vide their letter dated 28/3/2012 they intimated that in the year 2011-12 (April 2011 to Feb 2012), value of the clearances by their manufacturing unit was Rs.1218,48,41,983/- and value of clearances on account of trading was Rs.494,38,70,577/-. It was observed that during the said period the appellant had used the input services such as Advertisement services, Air Travel Agent services, Business Auxiliary Services, Club and Association Services, Commercial and Training and Coaching Services, Information Technology Services for both their manufacturing as well as trading activity and had availed credit on input services amounting to Rs.4,99,92,897/-.

+ The appellantswere neither maintaining separate records for receipt and consumption of common services used for manufacture of dutiable goods and trading activity nor were they restricting availment of credit to the extent of input services used in manufacture of dutiable goods. Howerver, citing rule 6 of CCR, 2004, on their own accord the appellant calculated and reversed Cenvat credit amounting Rs.4,06,785/- and paid interest @18% amounting to Rs.20,993/- and intimated the same to the department.

A SCN came to be issued alleging that while reversing the amount of Cenvat Credit and paying the interest theappellant had not followed the procedure as laid down in sub rule 3A (a) and (b) of the Rule 6 of CCR, 2004 and, therefore, they are liable to calculate and pay amount equivalent to 5% of the value on exempted services.

And, the rest, as they say is history.

After considering the elaborate submissions made by both sides the Bench observed -

++ It is observed that the appellant has availed the option provided under sub rule (3)(ii) of Rule 6 and paid an amount as per sub rule (3A) alongwith interest and intimated the same to the jurisdictional superintendent in writing vide letter dated 14/3/2012.

++ From the perusal of the said letter, we observed that the appellant categorically stated in the said letter that payment of Cenvat Credit which they have made alongwith interest is in accordance with Rule 6 (3A) of Cenvat Credit Rules. With this act of the appellant, it is clear that the appellant opted for the option as provided under Rule 6(3)(ii) of the Cenvat Credit Rules, 2012, in accordance to which, the appellant are supposed to an amount equivalent to Cenvat Credit on input services attributed to the exempted service in terms of Rule 6(3A).

++ In our view, three options have been provided under rule 6(3) and it is up to the assessee that which option has to be availed. Revenue could not insist the appellant to avail a particular option. In the present case the appellant have admittedly availed option as provided under Rule 6(3)(ii) and paid an amount as required under sub rule (3A) of Rule 6.

++ As regard the compliance of the procedure and conditions as laid down for availing option as provided under sub rule (3) (ii), we find that foremost condition is that the appellant is required to pay an amount as per the formula provided under sub rule (3A) on monthly basis. However, we find that as per the provision, payment on monthly basis is provisional basis, therefore it is not mandatory that whole amount or part of the amount as required to be paid on every month. The appellant though belatedly calculated the amount required to be paid in terms provided under Rule (3A) of Rule 6, therefore to fulfil the condition, assessee should pay the said amount, which has been complied by the appellant.

++ As regard the delay in payment, if any, the appellant have discharged the interest liability on such delay.

++ Regarding the compliance as provided under Clause (a) of Sub Rule (3A) of Rule 6 the appellant while exercising this option is required to intimate in writing to the Jurisdictional Superintendent, Central Excise, the following particulars …As per the submission of the appellant and perusal of their letter alongwith enclosed details, it is found that more or less all these particulars were intimated to the Jurisdictional Superintendent. The appellant has been filing their returns regularly on monthly basis to the department. On perusal of the copies of the such return submitted alongwith appeal papers, it is observed that the particulars, as required under clause (a) of sub rule (3A) of Rule 6 has been produced to the range superintendent. Therefore all the particulars which are required to be intimated to the Jurisdictional superintendent while exercising option stand produced. Though these particulars have not been submitted specifically under a particular letter, but since these particulars otherwise by way of return and some of the information under their letters has admittedly been submitted, we are of the view, as regard this compliance of Rule 6(3A), it stood made.

++ As regard the contention of the adjudicating authority that this option should be given in beginning and before exercising such option, we are of the view that though there is no such time limit provided for exercising such option in the rules but it is a common sense that intention of any option should expressed before exercising the option, however the delay can be taken as procedural lapse.

++ There is no condition provided in the rule that if a particular option, out of three options are not opted, then only option of payment of 5% provided under Rule 6(3)(i) shall be compulsorily made applicable ….From the said meaning of the term ‘option', it is clear that it, is the appellant who have liberty to decide which option to be exercised and not the Revenue to decide the same.

++ The appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub rule (3A) of Rule 6 of Cenvat Credit Rules, therefore, demand of huge amount of Rs.24,71,93,529/- of the total value of the vehicle amounting to Rs.494,38,70,577/- sold in the market cannot be demanded.

++ Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods.

++ In our view, any amount, over and above Rs.4,06,785/- (already paid) is not the part of the Cenvat Credit, which is required to be reversed. The legislature has not enacted any provision by which Cenvat credit, which is other than the credit attributed to input services used in exempted goods or services, can be recovered from the assessee.

The judgments cited by the A.R. were held to be not applicable.

Holding that the demand confirmed by the adjudicating authority has no legs and, therefore,cannot be sustained, the order was set aside and the Appeal was allowed.

In passing : Also see 2014-TIOL-476-CESTAT-MUM.

(See 2015-TIOL-1550-CESTAT-MUM)