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CX – Rule 6 of CCR – Even if assessee wanted to maintain separate accounts in respect of services received, it would be impossible for them, therefore, it cannot be forced: CESTAT

2019-TIOL-2163-CESTAT-ALL

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, ALLAHABAD
COURT No. I

Appeal No. E/59035/2013-EX[DB]

Arising out of Order-in-Original No.06/COMMR./GZB/2012-13, Dated: 31.03.2013
Passed by Commissioner of Customs, Central Excise and Service Tax, Ghaziabad

Date of Hearing: 27.02.2019
Date of Decision: 27.02.2019

M/s TIRUPATI TUBES

Vs

COMMISSIONER OF CENTRAL EXCISE
GHAZIABAD

Appellant Rep by: None 
Respondent Rep by: Shri Shiv Pratap Singh Dy. Commr. AR

CORAM: Archana Wadhwa, Member (J)
Anil G Shakkarwar, Member (T)

CX – The assessee maintained separate accounts and inventory of inputs used for dutiable and exempted final products and took Cenvat credit in respect of only that quantity of inputs which was used in or in relation to manufacture of dutiable final products – However, the assessee also have availed services of Telecom, Chartered Accountant, Business Auxiliary Services, Management Consultancy and General Insurance Services in respect of which during the period of dispute, they have taken the Cenvat credit – The Department’s objection is that the assessee have not maintained separate accounts and inventory in respect of use of these services in or in relation to the manufacture of dutiable and exempted final products and, therefore, the provisions of Rule 6(3) will become applicable and they would be liable to pay 5%/10% of the sale value of exempted final products – The view of the Department and impugned order based on the same is frivolous, as even if the assessee want to maintain separate account in respect of the services mentioned, it would be impossible for them – Lex non cogit ad impossibilia is well settled legal principle and therefore, the option of maintaining separate account and inventory in respect of the services cannot be forced upon them – Moreover, Section 6(3) of the Rules, on account of retrospective amendment to this Rule, also gives an option to a manufacturer to reverse the proportionate credit in respect of the Cenvated inputs/input services used in or in relation to the manufacture of exempted final products, which the assessee have done – In fact, the proportionate credit comes only to Rs.13,231/- against which the credit reversed is Rs.88,756/- – The impugned order is not sustainable: CESTAT

Appeal allowed

FINAL ORDER NO. 70506/2019

Per: Archana Wadhwa:

After rejecting the request for adjournment, we proceed to decide the appeal as a short issue is involved. Accordingly, we have heard learned A.R. Shri Shiv Pratap Singh appearing for the Revenue and have gone through the impugned orders.

2. The facts leading to filing of this appeal are, in brief, as under:-

“The appellant manufactures PVC Ribbed Strainer Pipes, PVC Pipes and also Deep Well Hand Pumps chargeable to Central Excise duty. Deep Well Hand Pumps falling under heading No.84132000 of the Tariff are fully exempt from duty under Notification No.10/2006-CE dated 01/03/2006 and other items are dutiable. There is no dispute that separate account and inventory of the inputs meant for dutiable and exempted final products had been maintained by the appellant. According to the appellant, they have taken Cenvat credit only in respect of the inputs used in the manufacture of dutiable final products. However, the Department’s objection is that the appellant have been availing Telecom Services, Chartered Accountant Services, General Insurance Services, Business Auxiliary Services and Management Consultancy Services, which are in respect of both, the dutiable as well as exempted final products, and since the appellant have not maintained separate accounts and inventory in respect of the services used for dutiable and exempted final products, in respect of the clearances of the exempted final products, they would be liable to pay an amount @5%/10% of the sales value. On this basis, a show cause notice dated 31/01/2012 was issued to the appellant for demand of an amount of Rs.66,90,857/- under Rule 6(3) of the Cenvat Credit Rules for the period 01/01/2007 to 31/11/2011 alongwith interest thereon under Section 11AB and also for imposition of penalty under them under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944. The show cause notice was adjudicated by the Commissioner vide Order-in-Original No.06/COMMR./GZB/2012-13 dated 31/03/2013 by which the above mentioned demand under Rule 6(3) of the Cenvat Credit Rules was confirmed against the appellant alongwith interest and penalty of equal amount was also imposed on them. In course of hearing, the appellant pleaded that the retrospective amendment to Rule 6(3) of the Cenvat Credit Rules also gave an option to the manufacturer to reverse the proportionate credit and the total Cenvat credit in respect of the Telecom Services, Chartered Accountant Services, General Insurance Services, Business Auxiliary Services, Management Consultancy Services availed by them during the period of dispute is only Rs.2,23,376/- and based on the value of the clearances of the exempted final products during the period of dispute, the proportionate credit would be Rs.13,232/- against which they have also reversed an amount of Rs.88,756/- and hence, the amount proposed to be recovered under Rule 6(3) of the Cenvat Credit Rules cannot be recovered, but this plea was not accepted.”

3. Against this order of the Commissioner (Appeals), this appeal has been filed.

4. The appellant’s contention is that even if the services of Telecom, Chartered Accountant, General Insurance, Business Auxiliary Services and Management Consultancy Services are treated as common services for exempted as well as dutiable final products, it is impossible for the appellant to maintain separate accounts and inventory as provided in Rule 6(2), that Rule 6(3) of the Cenvat Credit Rules as amended retrospectively also gave an additional option to a manufacturer of reversing the proportionate credit based on a formula prescribed in this regard in the Rule, that since on this basis, proportionate credit works out to Rs.13,231/- against which the appellant had already reversed Rs.88,756/-, the option of paying 5%/10% of the value of the exempted final product cannot be forced upon the appellant, that the impugned order is contrary to the provisions of the law and is not sustainable.

5. Shri Shiv Pratap Singh learned A.R. for the Revenue reiterated the findings of the Commissioner in the impugned order and emphasized that since the services of the Telecommunication, Chartered Accountant, General Insurance, Business Auxiliary Services and Management Consultancy Services were common services and no separate account and inventory in respect of these services regarding their use in the manufacture of the exempted final product and dutiable final products had been maintained, the provisions of Rule 6(3) of the Cenvat Credit Rules, 2004 would become applicable and accordingly, an amount equal to 5%/10% of the value of the exempted final product, would be payable by the appellant. He, therefore, pleaded that there is no infirmity in the impugned order.

6. There is no dispute that the appellant maintained separate accounts and inventory of the inputs used for dutiable and exempted final products and took Cenvat credit in respect of only that quantity of inputs which was used in or in relation to the manufacture of the dutiable final products. However, the appellants also have availed services of Telecom, Chartered Accountant, Business Auxiliary Services, Management Consultancy and General Insurance Services in respect of which during the period of dispute, they have taken the Cenvat credit of Rs.2,28,376/-. The Department’s objection is that the appellant have not maintained separate accounts and inventory in respect of the use of these services in or in relation to the manufacture of dutiable and exempted final products and, therefore, the provisions of Rule 6(3) will become applicable and they would be liable to pay 5%/10% of the sale value of the exempted final products. The view of the Department and the impugned order based on the same is frivolous, as even if the appellant want to maintain separate account in respect of the services mentioned above, it would be impossible for them. Lex non cogit ad impossibilia is well settled legal principle and therefore, the option of maintaining separate account and inventory in respect of the services cannot be forced upon them. Moreover, Section 6(3) of the Rules, on account of retrospective amendment to this Rule, also gives an option to a manufacturer to reverse the proportionate credit in respect of the Cenvated inputs/input services used in or in relation to the manufacture of exempted final products, which the appellant in this case have done. In fact, the proportionate credit comes only to Rs.13,231/- against which the credit reversed is Rs.88,756/-. We are, therefore, of the view that the impugned order is not sustainable. Accordingly, the same is set aside and appeal allowed with consequential relief.

(Pronounced in Court)

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