By TIOL News Service

CHENNAI, JULY 20, 2018: THE appellants are engaged in manufacture of both dutiable and exempted products and availed the facility of CENVAT credit paid on input services used in relation to manufacture of their final products but failed to maintain separate accounts for input services used in manufacture of dutiable and exempted products.

A SCN was issued proposing to demand 10% of value of exempted products. The appellant had reversed the amount being the credit availed on entire input services used commonly for dutiable as well as exempted products. In the SCN, it was specifically stated that appellants are required to maintain separate accounts in respect of certain services which fall outside the purview of Rule 6(5) of CCR, 2004. Meanwhile, taking note of the mention in SCN that they are eligible to avail CENVAT credit on certain services which fall under Rule 6(5), the appellant took re-credit. Department issued a letter dated 26.5.2014 informing the appellant that such re-credit taken suo moto is irregular.

Original authority confirmed the demand of Rs.46,15,943/- and appropriated an amount of Rs.21,31,535/- which was the balance after suo moto re-credit by the appellant. Penalty was also imposed under Rule 15 of CCR, 2004.

As the order was upheld by the Commissioner(A), the appellants are before the Tribunal.

Assessee submitted that the issue whether they are liable to pay 10% of the value of exempted goods when they have already reversed the credit which has been utilized commonly for dutiable and exempted products has been settled by following decisions:-

Chandrapur Magnet Wires (P) Ltd. Vs. Collector - 2002-TIOL-41-SC-CX

ICMC Corporation Ltd. Vs. Commissioner - 2014-TIOL-121-HC-MAD-CX

Tribunal observed -

++ Appellants had wrongly availed input service tax credit on common input services used for exempted and dutiable products. On being pointed out, they have reversed the entire input service tax credit. Later, on realizing that they are eligible for credit for certain services, they have taken suo moto credit.

++ Thus, having reversed the credit that has been irregularly availed by them, the department cannot force upon the appellant to pay 10% of value of clearances. Said issue has been settled in case of SPM Industries , ICMC Corporation Ltd. as well as ETA Technology Pvt. Ltd. - 2010-TIOL-569-HC-KAR-CX. It is stressed that the demand in respect of 10% of value of clearances is set aside on the ground that the appellant has reversed the credit in respect of input services, which they are not eligible, being common input services, used for exempted and dutiable products and which do not fall within the purview of Rule 6(5).

++ Assessee has submitted that they will not claim refund of the amount that has been so reversed.

Concluding that the demand cannot sustain, the impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-2218-CESTAT-MAD)