C.L. Mahar ORDER
Anil Choudhary, Member (J)
1. The appellant is a manufacturer of dutiable goods-HDPE Pipes/LLDPE Pipes. PVC Moldings, fittings, etc. which are dutiable and also manufacturer of exempt products i.e. Drip Irrigation System and Sprinkler systems. The appellant was operating or keeping their cenvat account under Rule 6(2) of Cenvat Credit Rules, maintaining separate accounts of inputs and input services used in dutiable and exempted goods. The officers of the Department visited the appellant on 1.4.2017. During the verification of the goods, it appeared that the appellant had, including other goods, cleared exempted goods viz. HDPE Sprinkler and Drip irrigation System during the period April, 2015 to March, 2016 without payment of duty/amount under Rule 6(3) of Cenvat Credit Rules. Further, it appeared that the appellant is availing cenvat credit on inputs, input services and capital goods. Pursuant to investigation, it appeared that the appellant has not paid amount equivalent to 6% (reversal of credit) of the value of the exempted goods cleared during 2015-2016, as required under Rule 6(3) (1) of Cenvat Credit Rules. As per the Department, they have not kept separate records in respect of common input services used in the manufacture of exempted goods, although the appellant has opted to keep separate records. It further appeared that there is short payment/reversal of amount payable in terms of Rule 6(3)(1) for the period 2016-2017, amounting to Rs. 67,85,726/-.Further, they took wrong availment of cenvat credit of Rs. 7,52,138/- on the photocopies of the documents, during March, 2017 in contravention of Rule 9, which on being pointed out, was reversed vide RG-23-A Part -II Entry No. 2761 dated 1.4.2017.
2. Accordingly, show cause notice dated 5.5.2017 was issued proposing to demand the aforementioned amount and further, a demand of Rs. 7,52,318/- with proposal for appropriation from the amount already reversed along with interest and further, penalty was proposed.
3. Show cause notice was adjudicated on contest and the proposed demands were confirmed and appropriated as proposed. Further, equal amount of penalty was imposed for all the three proposals, under Section 11 AC read with Rule 15 of Cenvat Credit Rules. Being aggrieved, the appellant is in appeal before this Tribunal.
4. Ld. Counsel for the appellant urges that the appellant has maintained separate accounts for input as well as capital goods used for the manufacture of dutiable as well as exempted goods, since the option given on 1.07.2014. However, some inputs services, which are used commonly for dutiable as well as exempted goods, could not be maintained separately and in fact, the input services so used in the manufacture of exempted goods are nominal as compared to the dutiable goods. Such common input services used are - internet, telephone, security services, etc. Further, it is difficult to separate such services used for exempted goods. Further, the appellant was under the impression that since these services were mainly used for dutiable goods, there was no need to maintain separate accounts for these services. Further, the appellant on being so advised, reversed the proportionate credit amount with respect to such input services, before filing reply to the show cause notice. The appellant has reversed the amount of Rs. 6,94,599/- under intimation to the Adjudicating Authority. Such amount has been paid by the challan on 25.04.2018. Such reversal of cenvat credit amounts to not taking of credit, as per law laid down by the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires Vs. CCE - MANU/SC/1061/1996 : 1996 (81) ELT page 3.
5. It is further urged that for minor procedural lapse, substantial benefit cannot be denied. It is further urged that Rule 6 of Cenvat Credit Rules is not the charging section, it is only a mechanism to reverse the cenvat credit for clearing exempt goods, wherein the assessee opts to maintain common accounts for receipt of the cenvat credit on inputs/input services. Admittedly, this appellant has maintained separate accounts as regards input and capital goods as well as input services. Only with respect to the few common input services like security services, telephone and internet, it was difficult to segregate at the initial stage and such segregation is possible only at the end of the financial year on the basis of the some reasonable ratio.
6. So far as the short reversal of 6% of value of exempted goods, for the period April, 2016 to Feb., 2017 amounting to Rs. 67,85,726/- is concerned, the appellant had opted out of the scheme of the common accounts of inputs credit w.e.f. 1.7.2014, and such option was finally upheld by this Tribunal in Miscellaneous Order No. 50110 of 2019 read with Final Order No. 51388 of 2018-EX (DB) dated 18.04.2018 in Appeal No. 51150 of 2017. Further, so far as the contention of the Revenue is concerned, w.e.f. 1.4.2016, after introduction of the new provisions, all the exempted goods cleared will attract reversal of cenvat credit @ 6%, it is urged, is incorrect. Reversal of cenvat credit gets attracted only on those goods, where input stage credit is availed, after introduction of the new provision w.e.f. 1.4.2016. The goods, which were already manufactured and were lying in stock as on 1.4.2016 will not attract the reversal as prescribed, as such goods were manufactured out of the non-credit availed inputs. It is further submitted that the clearance reflected in the ER-I return of exempted goods, categorically belongs to the two categories, (i) manufactured without availing credit at input stage and (ii) manufactured after availing credit.
7. It is further urged that 6% reversal will be applicable only in respect of 2nd category i.e. finished products manufactured after availing cenvat credit. It is further urged that the Adjudicating Authority has erred in raising demand for the total clearances made from 1.4.2016, which is totally erroneous and fit to be set aside. Further, without prejudice to their right of payment, they have reversed the amount of Rs. 17,85,726/- vide RG-23 Part-I Entry dated 18.05.2017. Further, in view of the declarations made in ER-I Return, no case of suppression is made out. Further, reliance is placed on the Division Bench Ruling of this Tribunal in the case of Mercedes Benz India (P) Ltd. - MANU/CM/0203/2015 : 2015 (40) S.T.R. 381 (Tribunal- Mumbai), wherein it was held that there is no time limit for exercising option given in Rule 6 of Cenvat Credit Rules and even the option can be made at later stage and adjustment made accordingly. It is also held that the appellant has liberty to decide which option is to be exercised and it not the Revenue to decide the same.
8. As regard the disallowance of cenvat credit of Rs. 7,53,318/-, it is urged that on the Bills of Entry dated 11.03.2017 for Rs. 6,18,347/- and Invoice No. Ex-1108/16-17 dated 29.03.2017 for Rs. 1,33,791/-, the appellant had availed cenvat credit on the basis of the photocopy. Further, originals were traced in the month of May, 2017 and the reversed credit of Rs. 7,52,318/- was re-availed in May, 2017. The appellant has prayed before the Adjudicating Authority for allowing reversal of their debit with respect to the said amount. Further, prayed for dropping of the penalty. Such facts have been admitted in the order-in-original in para 31.2, but the same were denied observing that the original documents were produced after one year from the date of the credit, hence, not admissible. Accordingly, ld. Counsel prays for allowing their appeal with consequential benefits.
9. Ld. Authorised Representative for the Department has relied upon the impugned order.
10. Having considered the rival contentions, I find that it is an admitted fact that the appellant has kept separate records, as required under Rule 6(2) of inputs and capital goods w.e.f. 1.7.2014/1.4.2015. Further, the admitted fact is that the appellant has kept common records of only few common input services, which is of negligible amount and further, the turnover of exempted goods is also negligible as compared to dutiable goods. Further, the appellant has reversed cenvat credit, on being so advised by the Department of the credit attributable to the exempted goods, under intimation to the Department. Thus, it amounts to not taking of cenvat credit at all with respect to the exempted goods as held by the Hon'ble Supreme Court in the case Chandrapur Magnet (supra). So far the amount of Rs. 7,52,318/- is concerned, admittedly, the same has been taken by the appellant on the original documents in their possession, but it appeared that the same have been mis-placed and could not be produced by the appellant during investigation. Cenvat credit cannot be denied as it is held that the substantial benefit should not be denied for small procedural lapse. Further, it has been repeatedly held that Rule 6(2) read with Rule 6(3) is not the charging section or provision, it is only the mechanism to reverse the cenvat credit involved in the exempt out (finished goods) by way of a convenient formula. Accordingly, I find that the impugned order suffers with impropriety and the same is mis-conceived. Accordingly, this appeal is allowed. The impugned order is set aside. The appellant is entitled to consequential benefit in accordance with law.
[Order pronounced on 14.02.2020]
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