Disallowance of Credit cannot be Done by Invoking Rule 6(3) of the Cenvat Credit Rules, 2004 Mechanically: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata Bench held that Disallowance of Credit cannot be Done by Invoking Rule 6(3) of the Cenvat Credit Rules, 2004 Mechanically.

The Appellant, M/s Aurum Pharmachem Private Limited, is engaged in the manufacture of dutiable final products, “Paint Driers” of various types, namely, Cobalt Octoate, Lead Octoate, Zinc Octoate etc. The appellant took credit on duty paid inputs as well as service tax paid on input services. They utilized such credit towards payment of duty on their final product.

 On scrutiny of records relating to production, clearances and cenvat credit account during Audit under EA-2000 by the Central Excise Officers, it was noticed that they have taken cenvat credit of service tax paid on the input services, viz, GTA Service (carriage inward), Customs House Agent Service, Telephone Service, ISO Certification Service etc. and utilized such credit towards payment of duty on their final product during the period from July, 2010 to March, 2014.

It is the case of the Department that the input services have been used in or in relation to the manufacture of the said dutiable final products as well as exempted goods during the period under dispute. It was noticed that separate accounts had not been maintained for receipt and use of common input services in respect of dutiable final products as well as exempted goods.

The Adjudicating Authority disallowed the cenvat credit amounting to Rs.15,70,918/- and confirmed the demand as proposed in the show-cause notice and also imposed penalty of equal amount under Sub-rule 2 of Rule 15 of Cenvat Credit Rules, 2004 read with proviso of Sub-section (c) of Section 11AC of the Central Excise Act, 1944.

A Single Bench consisting of P K Choudhary, Judicial Member observed that “I find that the Calcutta High Court in the case of Commissioner of Service Tax I, Kolkata Vs. M/s Surya Vistacom Private Limited, it was held that if according to the adjudicating authority, the assessee did not abide by the provisions of Rule 6(3) of the Cenvat Credit Rules, 2004, it was open to such adjudicating authority to reject the assessee’s claim as regards the disputed Cenvat Credit and it could not mechanically invoke the 6% Rule on the assessee.”

To Read the full text of the Order CLICK HERE

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