Reversal of credit taken on common input services for exempted and dutiable products.

PJ/Case Laws/2012-13/1434

Case:- DROLIA ELECTRO STEEL P LTD Vs COMMISSIONER OF CENTRAL EXCISE, RAIPUR

Citation:- 2013-TIOL-141-CESTAT-DEL

Brief Facts:-The appellant is manufacturer of sponge iron, for which the main raw material is iron ore lump. Since for manufacture of sponge iron, iron ore lumps of a particular size are required, the lumps received are crushed in course of which iron ore fines also generated as waste, which is sold out by the appellant. The appellant received the common services of GTA and clearing & forwarding agent services for receiving iron ore and availed Cenvat Credit of service tax paid in respect of the same. The department is of the view that since common input services have been received in respect of iron ore lumps, Cenvat Credit has been availed and the same have been used for manufacture of dutiable final product- sponge iron as well as exempted goods – iron ore fine and since separate account of such common input services has not been maintained, the provisions of Rule 6(3) of the Cenvat Credit Rules, 2004 would become applicable and in respect of clearances of iron ore fine, the appellant would be required to pay an amount of 8% of the sale value. It is on this basis that the Order-in-Original confirming the demand of amount payable under Rule 6(3) along with interest and imposing penalty on the appellant, has passed by the Commissioner. Against this order, the present appeal along with the stay application has been filed by the appellant.

Appellant’s Contention:-The appellant pleaded that there is no manufacturing involved in conversion of iron ore lumps into iron ore fines and hence provision of Rule 6(3) are not applicable and hence, no amount in terms of provisions of Rule 6(3) is recoverable from them, that there is no exemption Notification which exempt iron ore fine from duty and thus iron ore fine is not covered by the definition of 'exempted goods' as given in Rule 2(d) of Cenvat Credit Rules, 2004 and that in view of this, the impugned order is not correct. He also pleaded that the SCN has been issued by involving extended period under proviso to Section 11A(C) of Central Excise Act, 1944 while in absence of any fraud, willful misstatement, suppression of facts etc, the same could not be invoked and the demand is, therefore, time barred. The appellant therefore, pleaded that in view of these circumstances, the requirement of pre-deposit of demand along with interest and penalty of equal amount, may be waived for hearing of the appeal and recovery thereof may be stayed during the pendency of the appeal.

Respondent’s Contention:-The Respondent opposed the stay application by reiterating the findings of Commissioner in impugned order and emphasized that - (a) iron ore find is specifically mentioned in the Chapter 26 of the Central Excise Tariff and is covered under sub-heading 26011.0-40, and (b) by virtue of exemption Notification No. 4/06-CE (Sl.No.4), all the products of heading 2601 to 2617 of Chapter 26 are fully exempt from duty and hence the iron ore fine being exempted from duty under this notification, is covered by the definition of "exempted goods" as given in Rule 2(d) of Cenvat Credit Rules, 2004 and in view of this, the provisions of Rule 6(3) of Cenvat Credit Rules would become applicable as the appellant have used common input services, GTA services and clearing & forwarding agent's services in receipt of iron ore lumps in respect of which Cenvat Credit has been availed and which have been used in the manufacture of dutiable as well as exempted final product. The respondent further submit on time bar aspect, that the appellant in the ER-1 returns filed by them did not mention the clearance of iron ore fines and, hence longer limitation period has been correctly invoked. He, therefore, pleaded that this is not the case for waiver.

Reasoning of judgment:- The Tribunal heard both the parties and considered the submissions made by both the sides and perused the records. Even if the department's plea that iron ore fines is an excisable goods fully exempted from duty and, hence, covered by the definition of "exempted goods" as given in Cenvat Credit Rules and on this basis the provisions of Rule 6(3) would be applicable is accepted, in view of the retrospective amendment of the provisions of Rule 6(3) by Section 73 of proportionate credit for which a formula is prescribed in this sub-rule. According to the appellant, total Cenvat Credit in respect of common services is around Rs. 3 lakhs and the amount to be reversed cannot be more than Rs. 3 Lakhs. In view of this, the applicant are directed to deposit an amount of Rs. 3 lakhs within a period of four weeks from date of this order. Compliance to be reported on 23.04.12. On deposit of the above amount within the stipulated period, the requirement of pre-deposit of balance amount demanded under Rule 6(3), interest on this amount and penalty, shall stands waived and recovery thereof stayed till the disposal of the appeal.

Decision:-Stay granted.

Comment:-It is concluded from this case that when there is litigation involved as to availment of credit on common input services, a liberal approach is taken and pre-deposit is ordered only to the extent of total common input service credit in question.

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PJ/Case Laws/2012-13/1434

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