On wrong proportionate reversal of credit under rule 6(3)(b), the commissioner has power to ask for differential reversal amount.

PJ/Case Laws/2012-13/1211

Case:-M/S ROCHEM SEPARATION SYSTEMS (I) PVT LTD V/S COMMISSIONER OF CENTRAL EXCISE, THANE-II

Citation: - 2012-TIOL-1064-CESTAT-MUM

Issue:- On wrong proportionate reversal of credit under rule 6(3)(b), the commissioner has power to ask for differential reversal amount.

Brief Facts:- The Applicant filed this application for wavier of pre-deposit of duty of Rs.2,09,34,411/-, interest and penalty. Demand is confirmed in view of the provisions of Rule 6(3)(b) of the Cenvat Credit Rules on the ground that the applicants were availing input service credit in respect of common input services and the same were used in the manufacture of excisable as well as exempted goods during the period from March, 2005 to November, 2008.
According to the applicant, provisions of Rule 6 were retrospectively amended by Section 73 of the Finance Act, 2010 and as per the provisions of retrospective amendment in case where the manufacturer is availing credit in respect of the common inputs, common input services and the same are being used in exempted as well as excisable goods, the manufacturer has to reverse the credit attributed to the exempted goods and for the past period an option was given to file a declaration reversing the credit along with interest to the Commissioner of Central Excise. In pursuance of the provisions of Section 73 of the Finance Act, 2010, the applicant filed a declaration on 15.10.2010 after reversing the credit of Rs.2,91,696/- along with interest on the ground that this amount is attributed to the credit in respect of taxable services used in or in relation to manufacture of the exempted goods.
A show-cause notice was issued demanding duty of Rs. 2,09,34,411/- in view of the provisions of Rule 6(3)(b) of the Cenvat Credit Rules on the ground that the applicant had availed the credit in respect of the common input services which are used in or in relation to manufacture of excisable goods and exempted goods.
The Commissioner of Central Excise rejected the declaration filed under Section 73 of the Finance Act on the ground that the applicant had not correctly reversed the credit attributable to input services used in or in relation to manufacture of the exempted goods. The contention of the applicant is that as per provisions of Section 73 of the Finance Act the Commissioner of Central Excise on receipt of application in respect of reversal of credit attributable to the common input services used in or in relation of manufacture of exempted goods can verify the correctness of the amount paid within a period of two months from the date of filing of declaration and in case it is found that the amount paid is less, the Commissioner of Central Excise can direct the applicant to pay the differential amount which was to be paid within 10 days from the date of communication from the Commissioner of Central Excise in this regard.
Appellant’s Contention: - The appellant contended that the Commissioner of Central Excise rejected their declaration without calling upon them to make the case justified. Consequently the Commissioner of Central Excise also confirmed the demand in view of the provisions of Rule 6(3)(b) in respect of the show-cause notice already issued. Further they submit that the rejection of the declaration filed under Section 73 of the Finance Act is not sustainable as the Commissioner of Central Excise has no power to reject the declaration. The Commissioner of Central Excise, in case the amount has not been paid correctly, has to call the assessee and convey the exact amount required to be reversed. In this situation, the rejection of the declaration is not sustainable and the consequential demand in pursuance of the show-cause notice is also not sustainable. It is also submitted that verification was conducted in pursuance of the declaration filed and as per the report of the Dy. Commissioner, they were required to reverse the credit of Rs.8,61,411/- only attributable to the input services used in or in relation to manufacture of the exempted goods. Hence the demand is not sustainable.

Respondent’s Contention: - The respondent-Revenue submit that the applicant has not disclosed the true facts and circumstances, therefore, it is rightly rejected the declaration. The declaration was rejected on the ground that the applicant has not maintained separate record on the taxable services used in or in relation to manufacture of the excisable goods. Hence, the demand is rightly made.

Reasoning of Judgment:- The Hon’ble CESTAT held that the demand is confirmed under Rule 6(3)(b) of Cenvat Credit Rules on the ground that applicant availed CENVAT Credit in respect of the common input services which were used in or in relation to manufacture of exempted and excisable goods. As per the provisions of Section 73 of the Finance Act, 2010, for the previous period the assessee has to file a declaration showing the reversal of credit along with interest attributable to the credit in respect of inputs used in the manufacture of the exempted goods. The applicant filed necessary declaration and reversed the credit of Rs.2,91,696/- along with interest. The Commissioner of Central Excise has to, on receipt of an application under sub-section (2), verify the correctness of the amount paid within a period of two months from the date of receipt of the declaration and in case the amount so paid is found to be less than the amount payable, the Commissioner has to call upon the applicant to pay the differential amount along with interest, which shall be paid within a period of ten days from the date of receipt of the communication from the Commissioner in this regard. In the present case, the declaration filed by the applicant was rejected without affording an opportunity of hearing to the applicant. Further, as per the provisions of Section 73 of Finance Act, 2010 in case the amount so paid is found to be less that the amount payable, the Commissioner has to call upon the assessee to pay the differential amount along with interest. From the order passed on the declaration, they find that the applicant has deposited an amount of Rs.2,91,696/- whereas during the period in question, the applicant claimed credit of Rs.20,97,979/- in respect of the common input services used in or in relation to manufacture of the goods. The verification report of the Dy. Commissioner of Central Excise show that the applicant requires to reverse the credit of Rs.8,61,411/-attributable to the input services used in or in relation to manufacture of the exempted goods.
In view of the this, they find merit in the contention of the applicant that the rejection of the declaration filed under provisions of Section 73 of the Finance Act, 2010 is not sustainable. From the record, they find that as per verification report conducted by the Dy. Commissioner, the applicant is liable to reverse the credit of Rs.8,61,411/- and applicant had reversed the credit of Rs.2,91,696/- only. In these circumstances, the applicant is directed to deposit the amount as per the verification report (deducting the amount already deposited) within four weeks and on deposit of the above mentioned amount, the pre-deposit of the balance amount shall stand waived and recovery thereof stayed.

Decision: - Appeal allowed by way of remand.

Comment :- The retrospective effect was given by CBEC to proportionate reversal to pass on the benefit to manufacturers. But the department is bent upon not to pass on this benefit to assesses. When the proportionate credit is not done properly, they can ask for differential amount. The provisions also say so. But the learned adjudication officer rejected the application itself and asked to pay duty by reversing the entire amount. This shows the behaviour of the department. Thereafter, it is said that the litigation is increasing.

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PJ/Case Laws/2012-13/1211

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