No Excise Duty Demand on Reversal of Cenvat Credit for Common Input Service used in Manufacture of Exempted Goods Equal to 10% or 5%: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that there can be no demand of excise duty on reversal of Cenvat credit for common input service used in manufacture of exempted goods equal to 10% or 5%.

The appellant, PI Industries is engaged in manufacture of excisable goods falling under chapter No. 28,29,31& 38 of the Central Excise Tariff Act, 1985. They are also availing Cenvat Credit under Cenvat Credit Rules 2004 on central excise duty paid on Inputs, Capital Goods and Input Services.

Appellant is manufacturing Siapton 10L which was exempted. The said goods were cleared without payment duty but neither separate account was maintained for duty paid inputs and input services used in the manufacture of dutiable and exempted goods nor 10% amount of value of clearance of such goods was paid. Accordingly, show cause notices were issued to the appellant demanding central excise duty under Rule 6(3)(b) of Cenvat Credit Rules, 2004.

Ashok Dhingra with Sonia Gupta appearing for the appellant submitted that the Commissioner in the impugned order recorded a finding that the Appellant has reversed Cenvat Credit attributable to processing of SIAPTON during the period September 2004 to June 2009 along with interest and appropriated the same; accepted the CA certificate in that regard; but dropped the demand only for the period September 2004 to March 2008 covered under Rule 6 (7) of the Cenvat Credit Rules, 2004.

The Counsels submitted that it is an accepted principle of law that reversal of Cenvat Credit attributable to exempted goods or service amount to not taking Cenvat credit at all. However, the Commissioner while appropriated entire amount of Cenvat credit along with interest attributable to common input services for the period April 2004 to June 2009, dropped demand only for the period April 2004 to March 2008 being covered under Rule 6 (7) of the Cenvat Credit Rules and confirmed the demand and recovery amounting to Rs. 1,26,19,534 along with interest for the period April 2008 to June 2009, which is bad in law.

The Two-Member Bench of the Tribunal comprising (Ramesh Nair) Member (Judicial) and (C L Mahar) Member (Technical) observed that “If the assessee reverses the Cenvat credit in respect of common input service used in the manufacture of exempted goods the demand equal to 10%/5% will not sustain. Therefore, we do not find any merits in the impugned order confirming demand for the period April 2008 to June 2009.”

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