CENVAT Credit Availed Without Separate Records for Exempted and Dutiable Goods: CESTAT Orders Demand Recomputation [Read Order]

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a manufacturer availing CENVAT credit on input services used for both dutiable and exempted goods without maintaining separate records must recompute the credit attributable to exempted goods, and that the extended period of limitation and penalties are not applicable in the absence of suppression or fraud.

The appellant, The Andhra Sugars Ltd., is engaged in the manufacture of various excisable goods including sugar and molasses, as well as specialized fuels like Ultra Hydrazine (UH), Mono Methyl Hydrazine (MMH), and Hydroxy Terminated Polybutadiene (HTPB) supplied to ISRO under exemption Notifications No. 64/95-CE and 10/97-CE without payment of duty.

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The department alleged that the appellant availed CENVAT credit on common input services such as courier, rent-a-cab, telephone, and gas transportation without maintaining separate accounts for exempted and dutiable goods, in violation of Rule 6 of the CENVAT Credit Rules (CCR), 2004. A show cause notice was issued demanding recovery of credit and imposing penalties under Rule 15(2) of CCR and Section 11AC of the Central Excise Act.

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The appellant’s counsel argued that separate records were maintained plant-wise for all goods and that the input services in question were not used in the manufacture of exempted goods. They argued that services like courier and rent-a-cab were used solely in relation to dutiable goods and not for exempted supplies to ISRO. Regarding natural gas, the appellant submitted that it was used to generate steam and electricity, consumed captively across operations, and that fuel was excluded from the scope of Rule 6 during the relevant period.

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The revenue countered that no documentary evidence of separate accounting had been produced, and hence, Rule 6(3) was applicable. The adjudicating authority confirmed the demand and imposed penalties, holding that failure to maintain separate accounts warranted reversal or payment under Rule 6.

The two-member bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) observed that the appellant did not produce adequate evidence of maintaining separate records; the law distinguishes between the pre- and post-April 1, 2008 periods.

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The tribunal ruled that for the period before April 1, 2008, the appellant must pay the amount demanded in the show cause notices, as there was no statutory provision for proportionate reversal. For the period after April 1, 2008, the appellant may recompute and reverse only the proportionate credit attributable to exempted goods as per Rule 6(3A).

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The tribunal observed that the issue was interpretative and that extended limitation under Section 11A was not applicable due to the absence of suppression, fraud, or willful misstatement. Accordingly, the penalty under Rule 15(2) and Section 11AC was also set aside.

The matter was remanded to the adjudicating authority to recompute the demand per the tribunal’s findings and restrict recovery to the normal limitation period. The appeal was partly allowed.

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The Andhra Sugars Ltd vs Commissioner of Central Tax , 2025 TAXSCAN (CESTAT) 525 , Excise Appeal No. 3528 of 2012 , 16 May 2025 , N. Anand , V. Srikanth Rao