Full CENVAT Credit Admissible on Rule 6(5) Services Even If Used for Exempt Goods: CESTAT in Baxter India Case [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that full CENVAT credit is admissible on specified input services under Rule 6(5) of the CENVAT Credit Rules, 2004, even when such services are used for both dutiable and exempt goods.

Baxter (India) Pvt. Ltd. is manufacturing medicaments and making both dutiable and exempt products. They took CENVAT credit on input services, including services distributed by head office as ISD. The department said that they did not maintain separate accounts and wrongly took common credit.

A show cause notice was issued demanding about Rs. 10.41 crore, being 10% of exempt goods value under Rule 6(3), along with interest and penalty. The Commissioner confirmed the demand, so the assessee filed appeal before Tribunal.

The appellant’s counsel argued that the services are covered under Rule 6(5), which allows full credit even if services are used commonly, as long as they are not used only for exempt goods. They also argued that services like maintenance, repair, consultancy are covered and used for overall business. They also reversed some amount with interest even though not required.

The revenue counsel argued that the assessee did not follow Rule 6 procedure and did not maintain separate accounts, so 10% amount is payable.

The two-member bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) observed that Rule 6(5) has overriding effect and gives full credit on specified services. It observed that services like garden maintenance, computer, EPABX, lift, software are covered under maintenance or consulting services under Rule 6(5).

The tribunal observed that department did not prove that services were used only for exempt goods. So Rule 6(3) cannot be applied. It also observed that Rule 6(5) overrides other rules, so conditions of Rule 6(3) are not required.

The tribunal pointed out that Commissioner made mistake by applying Rule 6(3). It also explained that assessee already reversed some credit with interest, which can be considered under law. Finally, the Tribunal set aside the demand, interest and penalty, and allowed the appeal in favour of the assessee.

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