Is assessee required to reverse credit in respect of input services attributable to 2% of total production of rectified spirit which was cleared without any duty?

PJ/Case Law /2016-17/3335

Case:- COMMISSIONER OF CENTRAL EXCISE, MEERUT-I Versus BAJAJ HINDUSTAN LTD.

Citation:- 2016 (43) S.T.R. 275 (Tri. - All.)

Brief facts:- Brief facts are that the respondents are engaged in the manufacture of sugar, molasses and de-natured spirit. The Revenue entertained certain doubts regarding eligibility of credit on various input services availed by the respondents as these services appeared to be used in the manufacture of rectified spirit, which is exempted from Excise duty. Proceedings were initiated against the respondents by way of show-cause cum demand dated 1-8-2008. After due process, the case was adjudicated by the ld. Commissioner. He dropped the demand raised in the notice. The Revenue is aggrieved against dropping of a part of demand, is in the appeal before us. It is contended that the original authority indicated that approximately 98% of the total production of rectified alcohol is used for de-natured alcohol cleared on payment of duty. Hence, it is the plea of the Revenue that remaining 2% is not used in the manufacture of denatured alcohol and hence, appropriate credit of input services should have been ordered to be reversed by the original authority.

Appellant’s contention:- The ld. AR for the Revenue, reiterated the grounds of appeal and when asked specially about the quantification of clearance of rectified spirit amounting 2%, he informed that an inference has been made based on the findings of the original authority at Para 4.7 of the impugned order.

Respondent’s contention:- The ld. Counsel for the respondent, states that there is no ground for invoking Rule 6(3) of Cenvat Credit Rules, 2004 in the present case. He drew our attention to their plea recorded by the original authority at Para 3.6.2 of the impugned order. In terms of Rule 6(5) of Cenvat Credit Rules, 2004 as prevailing during the relevant period when the credit is availed on input services of listed category, there is no need to follow the provisions of sub-rules (1), (2) & (3) of Rule 6 of Cenvat Credit Rules, 2004, unless such services are exclusively used in relation to manufacture of exempted goods or provided exemption services. The respondent has listed out of the services, on which credit has been availed by them and contended that except for Rs. 176/- availed on cargo handling services, all other services are covered by the provisions of Rule 6(5).

Reasoning of judgment:- The Tribunal heard both the sides and examined the appeal records. It found that there is no assertion with evidence by the Revenue regarding actual clearance of exempted rectified spirit by the respondent to the extent of 2% of total production. An inference made is the reason for this appeal. However, even, if it is considered that such 2% of rectified spirit has been cleared by the respondent, the plea made by the respondent as recorded by the original authority regarding applicability of Rule 6(5) of Cenvat Credit Rules, 2004, has to be considered the services or of such nature, which do not attract the provision of sub-rules (1), (2) and (3) of Rule 6.

Considering the above position, the Tribunal found no merit in the appeal filed by the Revenue and accordingly, the same is dismissed.

Decision:- Appeal dismissed.

Comment:-The gist of the case is that the assessee used certain input services in manufacture of dutiable as well as exempted product. The Revenue contended that assessee is required to reverse credit in respect of input services attributable to 2% of total production of rectified spirit which was cleared without any duty. But, since the assessee used input services of listed category, hence there is no need to reverse credit taken thereon in terms of Rule 6(5) of Cenvat Credit Rules, 2004 and further, the provisions of sub-rules (1), (2) and (3) of Rule 6 ibid will not be applicable to them especially when Revenue failed to establish the clearance of 2% of rectified spirit without payment of duty.

Prepared by:-Praniti Lalwani

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PJ/Case Law /2016-17/3335

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