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II. Tribunal
Failure to intimate the department under Rule 6(3A) of the CENVAT Credit Rules is a mere procedural lapse and denial of benefit of proportionate reversal of credit is not justified.
Facts
The Appellant is a manufacturer availing the benefit of Notification No. 6/2006-CE and clearing goods at a NIL rate of duty. A show cause notice was issued demanding 10%/5% of the value of exempted goods under Rule 6(3)(i) of the CENVAT Credit Rules, 2004 (CCR) on the contention that common inputs and input services were used in the manufacture of exempted and dutiable goods and no separate accounts were maintained. It was argued that assessees not maintaining separate accounts have two options under the CCR i.e. either pay 5% or 10% of the value of exempted goods or do a proportionate reversal of CENVAT credit on inputs and input services attributable to manufacture of exempted goods as per the formula prescribed under Rule 6(3A) of CCR. The second option being beneficial was chosen and credit was reversed. The department argued that no intimation was provided as required under Rule 6(3A) of the CCR and therefore they were bound to pay as per the first option.
Held
The Tribunal observed that sub-rule 6(3) provides for two options and it was noted that Rule 6(3A) of the CCR did not provide that failure to intimate would make the assessee lose the choice of a proportionate reversal of credit. It was held that failure to intimate would not automatically result in application of Rule 6(3)(i) and such a procedural lapse was condonable and denial of a substantive right was unjustified. Further the revenue’s plea of remanding the matter was also rejected on the ground that the amount of credit proportionately reversed along with interest formed a part of the reply to the show cause notice and the same was never disputed.
(Note: Readers may note that Notification No. 13/2016-CE(N.T) has inserted a new sub-rule (3AA) in the CENVAT Credit Rules, 2004 effective from 01/04/2016 providing that on failure to exercise the option under sub-rule 6(3) and follow the procedure provided under sub-rule 6(3A), the Central Excise officer may allow the assessee to follow the procedure and pay the proportionate amount on payment of interest @ 15% from the due date of payment, till the date of payment thereof. Accordingly intimation to the department now appears mandatory.)
