CENVAT Credit of Excise Duty Allowable when 5% of Value of Exempted Goods Reversed in terms of Rule 6(3)(i) of CENVAT Credit Rules: CESTAT [Read Order]

The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that the CENVAT credit of excise duty is allowable even when 5% of the value of exempted goods is reversed in terms of rule 6(3)(i) of the CENVAT Credit Rules,2004. The Court quashed the demand of excise duty raised on the ground of the assessee had violated the condition of notification. 

Zenith Fibers Ltd, the appellant assessee are engaged in the manufacture of Polypropylene Staple Fiber and Polypropylene Spun Yarn and availed the CENVAT Credit on the common inputs however at the time of clearance of the goods they have reversed 5% of the value of the goods in terms of Rule 6(3)(i) of CENVAT Credit Rules. 

The assessee appealed against the order passed by the Commissioner (Appeals) for confirming the demand of excise duty by denying the exemption under the exemptions notification. 

Abhay Desai, the counsel for the assessee contended that the reversal of 5% in terms of 6(3)(i) of CENVAT Credit Rules was also a mechanism of non-availment of CENVAT Credit therefore, by reversing of 5% the situation was as if no CENVAT Credit was availed. 

Further submitted that the condition of the notification stands complied with and the demand was not sustainable and liable to be deleted. 

Ajay Kumar Samota, the counsel for the department relied on the decisions made by the lower authorities and contended that the demand raised by the department was as per the law and the assessee had not fulfilled the conditions mentioned in the notification to avail the CENVAT credit. 

The Bench observed that if there was a condition of non-availment of CENVAT Credit but even if the CENAVT Credit was availed on the common input and input services by reversing the credit as per the Rule 6(3) of the CENVAT credit rules and the condition of the Notification shall stand complied with. 

Also held that the reversal of 5% of the value of exempted goods in terms of 6(3)(i) of CENVAT Credit Rules was one of the mechanisms to expunge the CENVAT Credit availed by the assessee therefore even after taking the credit if the assessee reverses an amount, as provided in Rule 6(3) it will amount to non-availment of CENVAT Credit. 

The two-member bench comprising Ramesh Nair (Judicial) and C.L Mahar (Technical) held that the assessee by reversing 5% of the value of exempted goods in terms of Rule 6(3)(i) fulfilled the condition of Notification and the assessee are legally entitled to exemption Notification, thus the demand was not sustainable and quashed the demand.

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