Demand of Amount on Exempted Service in Terms of Rule 6 of Cenvat Credit Not Allowable when Assessee Paid Back the Entire Cenvat Credit along with interest: CESTAT [Read Order]

The Ahmedabad bench Customs, Excise and Service Tax Appellate Tribunal (CESTAT) have held that demand of amount on exempted service in terms of rule 6 of Cenvat Credit is not allowable when the assessee paid back the entire Cenvat credit along with interest.

The Revenue against the adjudication order passed by Commissioner, Central Excise Rajkot in favour of Galaxy Diesel & Electricals.  As per the grounds of appeal, even though the respondent had paid back the full amount attributed to exempted service along with interest, they are liable to pay 8%/6%/5% of the value of exempted service because they have not maintained separate accounts.

Shri Prabhat K. Rameshwaram Commissioner (AR) appeared on behalf of the Revenue and submitted that since the respondent has not maintained a separate account in respect of input service used for exempted goods, there is no option except to pay the amount at the rate of 8%/6%/5% in terms of Rule 6(3) of Cenvat Credit Rules, 2004.  He also placed reliance on the Bombay High Court judgment in the case of CCE, Thane-1 vs. Nicholas Piramal (India) Limited – 2009.  

The Revenue’s case is that even though the respondent has admittedly paid back the entire Cenvat credit availed along with interest which was partly attributed to exempted service even then the respondent is liable to pay 8%/6%/5% amount of value of exempted services in terms of Rule 6(3) of Cenvat Credit Rules, 2004. 

The Courts and Tribunal held that once the Cenvat credit of the common inputs used about exempted service is reversed along with interest, the demand of 8%/6%/5% in terms of Rule 6(3) will not sustain. 

The Commissioner has also taken support from one of the landmark judgments in the Chandrapur Magnet Wires Pvt case. Limited vs. CCE, Nagpur wherein it was held that “even though the modvat credit was availed, the same is reversed along with the interest situation becoming as if no Cenvat credit is availed.  Accordingly, the benefit of notification was extended”. 

“The demand of 8%/6%/5% cannot be made in the facts of the present case when the respondent has admittedly paid back the entire Cenvat credit along with interest which was partly attributed to exempted service.  Therefore, the demand is not sustainable.”, the two-member bench comprising Mr Ramesh Nair, Judicial Member and Mr C L Mahar, Technical Member held.

The CESTAT dismissed the appeal and upheld the impugned order.

To Read the full text of the Order CLICK HERE

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