In a significant case, the Ahmedabad bench Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the reversal of Cenvat Credit is not valid when Cenvat Credit availed on Exempted Common Input Service.
Emami Limited, the appellant are engaged in the manufacture of dutiable as well as exempted goods. They are availing Cenvat credit in respect of input and input services. There are certain common services such as management consultant services, Chartered Accountant services, financial and accounting services, etc. are availed by the head office of the appellant, which is attributed to both dutiable and exempted goods.
During audit, it was observed that the appellant are engaged in the manufacture of dutiable as well as exempted goods from April-2009 to March- 2013 wherein exempted goods to the tune of Rs. 43,02,50,793/- were manufactured and sold.
It was further observed that the appellant had availed the Cenvat credit of input services to the amount of Rs. 56,52,957/- based on invoices issued by its head office as an ISD on services like management consultancy, CA service, etc. which were commonly used for dutiable as well as exempted goods. Thus it was observed that the appellant should reverse Cenvat credit availed on such common input/ input services based on ratio of exempted goods manufactured.
Based on the audit objection, the appellant in the months of May 2013 and July 2013 reversed the proportionate Cenvat credit of Rs. 30,68,062/- along with payment of interest of Rs. 8,01,333/- thereafter the appellant filed an intimation in terms of Section 11A (2B) of the Central Excise Act 1944 in form Annexure S dated 20.07.2013 submitting the payment details for reversal of credit of Rs. 30,68,062/- and interest of Rs. 8,01,333/- and requesting the commissioner to close the audit objection and not to issue any show cause notice for imposing penalty.
However, the department issued a letter dated 19.09.2013 directing the appellants to pay penalty under the provisions of Section 11A (5) of the Central Excise Act 1944, for irregular availment of Cenvat credit of common input service for dutiable as well as exempted goods.
A two-member bench comprising Mr Ramesh Nair, Member (Judicial) and Mr C L Mahar Member (Technical) viewed that the appellant admittedly paid an amount of Rs. 4,06,785/- plus interest, this is not under dispute, thus the appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of Cenvat Credit Rules, therefore demand of huge amount of Rs. 24,71,93,529/- of the total value of the vehicle amounting to. Rs. 494,38,70,577/- sold in the market cannot be demanded.
It was observed that actual Cenvat credit attributed to the exempted services used towards sale of the bought out cars in terms of Rule 6(3A) comes to Rs. 4,06,785/- where as adjudicating authority demanded an amount of Rs. 24,71,93,529/-.
“Any amount, over and above Rs. 4,06,785/- is not the part of the Cenvat Credit, which required to be reversed. The legislator has not enacted any provision by which Cenvat credit, which is other than the credit attributed to input services used in exempted goods or services; can be recovered from the assessee.”, the CESTAT held.
The Tribunal Further held that the appellant are not liable for payment of an amount equal to 10%/6%/5% of the value of the exempted goods and set aside the same. However, the reversal of the proportionate credit along with interest paid by the appellant is correct and the same is maintained. The impugned order is modified and allowed the appeal.
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