CENVAT Credit on Exempted Services not Required in Apportionment with Dutiable Goods: CESTAT rules in favour of Honda Motors [Read Order]

In a major relief to Honda Motors, the Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that the CENVAT Credit, which pertains to input services exclusively used in dutiable goods, is not required to be included in the “total CENVAT Credit” for apportionment between exempted services and dutiable goods.

Honda Motor India Pvt. Ltd, the Appellant/assessee has availed and utilized the Cenvat credit earned on input services for discharging its duty liability, in terms of the provisions of the Credit Rules. In addition to this, the Appellant is also engaged in trading of goods, which is an exempted service and thus, no Cenvat credit was availed by the Appellant on the input services, which were exclusively used for trading activity.

However, certain input services, on which Cenvat credit was availed, namely, Warehouse Support Services, Goods Transport Agency (inward freight), Renting of Warehouse, Legal & Consultancy Services etc., were used by the Appellant in both manufacture of dutiable goods and provision of exempted services i.e. trading.

The common Cenvat credit was availed by the Appellant, following the procedure of proportionate reversal of Cenvat Credit amount attributable to exempted service under Rule 6(3A) of the CENVAT Credit Rules, 2004 as per the formula prescribed therein, under due intimation letter filed at the beginning of each Financial Year, to the Excise Range Office.

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An Audit of the Appellant’s records was conducted by the Department for the period April 2013 to March 2014. The audit team raised an objection that the Appellant had short reversed an amount of Rs. 2,93,347/- towards Cenvat credit under Rule 6(3)(b) of the C.C.R.2004 as the Appellant took into consideration only the credit on ‘common input services’ instead of total Cenvat credit.

It was alleged that while reversing proportionate Credit under Rule 6(3)(ii), the Appellant had only considered the amount of Cenvat credit “attributable to the common input services” used in both-the manufacture of dutiable goods as well as provision of exempted service (i.e. trading), instead of taking into consideration the total Cenvat credit taken on all input services including the common input services, for the purpose of such reversal.

A Show Cause Notice was issued to the Appellant, proposing to recover the short-paid amount of Rs. 9,11,357/- determined under Rule 6(3A)(b) of the C.C.R.2004, along with interest and penalty. The reply to the SCN was duly filed on 20.11.2015 by the Appellant, elaborating the rationale behind using common Cenvat Credit and also stated the Circular No. 754/70/2003-CX dated 09.10.2003 and Circular No. 868/6/2008 -CX dated 09.05.2008 in support.

The circular clarified that input services exclusively relating to manufacture of dutiable goods is eligible for Cenvat credit under Rule 3 of the CCR. The commissioner upheld all the allegations contained in the SCN and confirmed the demand raised in the SCN, alongwith interest and also imposed penalty.

The two member bench of P.K. Choudhary (Judicial Member) and Sanjiv Srivastava (Technical Member) has  tribunal held that the CENVAT Credit, which pertains to input services exclusively used in dutiable goods, is not required to be included in the “total CENVAT Credit” for apportionment between exempted services and dutiable goods. It has been held that for apportionment of CENVAT Credit, only such credit which was availed on input service used commonly in exempted service and dutiable goods has to be taken into consideration.

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While allowing the appeal, the tribunal held that to invoke proviso to Section 73(1), the conditions stated therein is required to be fulfilled, it should be proved that the Appellant had, by some positive act, suppressed the fact from the department with an intention to evade irregular Cenvat credit. There is no suppression of facts.

The tribunal held that since the demand of Cenvat Credit itself is not sustainable, penalty is not imposable and consequently, no interest is also recoverable. Ushmeet Kaur Monga appeared for the appellant and Sandeep Pandey appeared for the respondent.

To Read the full text of the Order CLICK HERE

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