CENVAT Reversal to be Computed Only on Common Input Services, Not Total Credit: CESTAT Allows Appeal [Read Order]

The New Delhi Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT) Bench has set aside the demand of CENVAT credit reversal, holding that the Department had erroneously applied the pre-amended provisions of Rule 6(3A)(c)(iii) of the CENVAT Credit Rules, 2004 to a period covered by the amended law.

The appellant, MSP Steel & Power Ltd., engaged in the manufacture of sponge iron and billets, had installed a captive power plant and used part of the generated electricity for internal manufacturing and partly supplied the balance to the Chhattisgarh State Electricity Board (CSEB).

The Department viewed the sale of electricity as an exempted goods activity and invoked Rule 6 of the CENVAT Credit Rules, 2004, alleging short reversal of credit on input services used commonly for dutiable and exempted goods for the period January 2016 to June 2017.

A demand of ₹46.14 lakh, along with interest and penalty under Section 11A(1)(a) of the Central Excise Act, 1944, was confirmed. The Commissioner (Appeals) upheld the order, prompting the assessee’s appeal before the Tribunal.

Appearing for the appellant, Jitin Singha contended that the Department incorrectly used “total input service credit” instead of “common input service credit” in applying the Rule 6(3A)(c)(iii) formula. He argued that post-1 April 2016, the law was amended to rationalize the reversal mechanism, and the said amendment being clarificatory should apply retrospectively. Reliance was placed on Tribunal rulings in E-Connect Solutions Pvt. Ltd. v. CCE & CGST, Udaipur [2021 (376) ELT 678 (Tri-Del.)] and CCE & ST, Rajkot v. Reliance Industries Ltd. [2019 (28) GSTL 96 (Tri-Ahmd.)].

The Bench, comprising Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) observed that the amendment made by Notification No. 13/2016-CE (NT) dated 01.04.2016 clarifying that only common input services should be considered for the purpose of reversal was retrospective in nature. Hence, applying the earlier formula that included total input service credit was impermissible in law.

It was noted that the Department had failed to appreciate the amended provision effective from 01.04.2016, which specifically limited the reversal requirement to common input services used in both dutiable and exempted activities.

The Tribunal held that “the authorities have seriously erred in applying the pre-amended provisions to the post-amended period. The demand for the said period is not maintainable and is hereby set aside.”

The Tribunal further reaffirmed that the amendment carried retrospective effect, as its purpose was merely to clarify the computation mechanism and not to alter the underlying principles. The Bench found that the Revenue’s computation based on total input service credit was contrary to the settled legal position.

Allowing the appeal, the Tribunal quashed the demand of ₹46.14 lakh along with penalties and interest, holding that the computation adopted by the Revenue was legally unsustainable.

“The appellant is entitled to relief as the case is squarely covered by earlier Tribunal rulings interpreting Rule 6(3A)(c)(iii) to apply only to common input services,” the Bench concluded.

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