Whether credit reversal of 6% of exempted goods required when option given by Finance Act, 2010 exercised?

PJ/CASE LAW/2014-15/2557

Case:- COMMISSIONER OF CENTRAL EXCISE, CHENNAI-II VERSUS ICMC CORPORATION LTD.

Citation:-2015(315) E.L.T. 388 (MAD.)

Brief Facts:-The Revenue has preferred this Civil Miscellaneous Appeal as against the Final Order No. 1445 of 2007, dated 4-12-2007 passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai in allowing the assessee’s appeal and the Civil Miscellaneous Appeal is admitted on the following questions of law:
“Whether on facts and in the circumstances of the case, the Tribunal is right in holding that the respondent is entitled to Cenvat credit on the inputs used exclusively in the manufacture of goods, which are exempted and which are cleared without payment of duty?”
Whether the CESTAT is justified in holding that the assessee is entitled to take Cenvat credit on all inputs including inputs exclusively used in the manufacture of exempted final products contrary to the provisions of Rule 6(1) of Cenvat Credit Rules, 2004?
Whether on facts and in the circumstances of the case, the CESTAT is right in applying the ratio of judgment in the case of Hetero Labs Ltd. v. Commissioner of Central Excise, Hyderabad - 2005 (192)E.L.T. 716 (Tri.-Bangalore) where the facts involved are entirely distinct and different from the facts of the instant case and when the said decision has not reached finality?
Following the decision of the Apex Court in the case of Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur reported in 1996 (81) E.L.T. 3 (S.C.), wherein the Apex Court held that when the credit attributable to the inputs in exempted product is reversed by the assessee, the demand of 8% - 10% on the sale price was not justified under Rule 6 of the Cenvat Credit Rules, 2004, the Customs, Excise and Service Tax Appellate Tribunal allowed the appeal filed by the assessee holding that when the credit was reversed by the assessee, it was as if they had not taken any credit at all.
Aggrieved by this, the Revenue is on appeal before this Court.

Appellant Contentions:-Appellant submitted that the assessee is entitled to take Cenvat credit on all inputs including inputs exclusively used in the manufacture of exempted final products contrary to the provisions of Rule 6(1) of Cenvat Credit Rules, 2004. Hence, it is not sustainable in law.

Reasoning of Judgment:- High Court find from a reading of the amendment made to Rule 6 under Section 73 of the Finance Act, 2010 that the procedure of the Cenvat Credit Rules under Rule 6 was brought in with retrospective effect from September, 2004 by insertion under Rule 6(6), which reads as under:

S. No.	Provisions of Cenvat Credit Rules, 2004 to be amended	Amendment	Period of effect of amendment
1	2	3	4
	Rule 6 of the Cenvat Credit Rules, 2004 as published vide Notification Number G.S.R. 600 (E), dated the 10th September, 2004 [23/2004-CENTRAL EXCISE (N.T.), dated the 10th September, 2004].	In the Cenvat Credit Rules, 2004, in Rule 6, after sub-rule (6), the following sub-rule shall be inserted, namely : “(7) Where a dispute relating to adjustment of credit on inputs or input services used in or in relation to exempted final products relating to the period beginning on the 10th day of September, 2004 and ending with the 31st day of March, 2008 (both days inclusive) is pending on the date on which the Finance Bill, 2010 receives the assent of the President, then, notwithstanding anything contained in sub-rules (1) and (2), and clauses (a) and (b) of sub-rule (3), a manufacturer availing Cenvat credit in respect of any inputs or input services and manufacturing final products which are chargeable to duty and also other final products which are exempted goods, may pay an amount equivalent to Cenvat credit attributable to the inputs or input services used in, or in relation to the manufacture of, exempted goods before or after the clearance of such goods : Provided that the manufacturer shall pay interest at the rate of twenty-four per cent, per annum from the due date till the date of payment of the said amount. Explanation : For the purpose of this sub-rule, “due date” means the 5th day of the month following the month in which goods have been cleared from the factory.	10th day of September, 2004 to the 31st day of March, 2008 (both days inclusive).

As per Section 73 sub-section (2) of the Finance Act, 2010 the assessee has to make an application to the Commissioner of Central Excise along with documentary evidence and a Certificate from the Chartered Accountant or a Cost Accountant, certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of exempted goods within a period of six months from the date on which the Finance Bill, 2010 received the assent of the President.
Considering the fact that the assessee had reversed the credit even prior to the amendment and the order of the Tribunal is in fact no different from what is contemplated under the Finance Act, 2010, we do not find anything survives further for this Court to consider the merits of the case pleaded by the Revenue.
Accordingly, the Civil Miscellaneous Appeal fails and the same is dismissed. No costs.

Decision:-Appeal dismissed.

Comment:-The gist of this case is that assessee is not liable to pay amount under rule 6(3) if credit taken on inputs which are used in exclusively for manufacture of exempted goods had been already reversed by them by availing the benefit of option given by the Finance Act, 2010. In view of retrospective amendment in Rule 6, Finance Act, 2010 gave an option to the assessee to reverse the cenvat credit attributable to inputs used in manufacture of exempted goods or provision of exempted service and intimate the availment of option to the revenue authorities. The consequence of exercising the option was that the assessee would not be required to make payment of 6% of the value of exempted goods/services.

Prepared by: Hushen Ganodwala

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PJ/CASE LAW/2014-15/2557

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