IMPORTANT POINT
The court established that proper reversal of Cenvat credit negates the demand for additional payments under Rule 6(3) of the Cenvat Credit Rules.

ORDER :

BHARGAV D. KARIA, J.

1. Heard learned advocate Mr.Utkarsh Sharma for the appellant and learned advocate Mr.Ashok Kumar Dhingra with learned advocate Mr.Parva Gupta and learned advocate Mr.Samarth Katare for the respondent.

2. By this appeal under Section 35G of the Central Excise Act, 1944, the appellant- Revenue has proposed the following substantial questions of law arising out of the Judgment and Order dated 08.06.2023 passed by the Customs, Central Excise and Service Tax Appellate Tribunal, Western Zonal Bench, Ahmedabad (for short ‘the CESTAT’) in Excise Appeal No.11050 of 2013-DB which was filed by the respondent being aggrieved by the Order- in-Original/Appeal No.11-12-COMMR-SURAT-II- 2013 dated 29.01.2023 passed by the Commissioner of Central Excise, Customs (Adjudication)-Surat-II :

“(a) Whether the Hon'ble CESTAT, is correct in holding that if the assessee reversed/paid proportionate Cenvat credit in respect of common input service used in the manufacture of exempted goods the demand equal to 10% would not sustain. Whether, the proportionate reversal of cenvat by the assessee is proper and admissible ignoring the conditions stipulated under Rule 6(3)(b) of Cenvat Credit Rules, 2004.

(b) A significant legal question arises as to whether the Tribunal properly acted as the appellate authority under Section 35C of the Central Excise Act, 1944 because the Hon'ble Tribunal does not explicitly address/verify whether the conditions stipulated under Rule 6(3)(b) of Cenvat Credit Rules, 2004 have been complied with by the assesse. These facts were not addressed in the approach taken by the Tribunal. According to Section 35G of the Central Excise Act of 1944, failing to act appropriately in it's capacity as an appellate authority may be a substantial question of law in and of itself. The Tribunal did not address/verify the terms and conditions stipulated in the Rule 6 of Cenvat Credit Rules, 2004; it failed to act as appellate authority properly.

(c) The findings are based on no judgment of higher appellate authority and evidence and/or while arriving at the said finding, relevant conditions stipulated under rules have not been taken into consideration and legal principles have not been followed.”

3. The brief facts of the case are as under :

3.1. The respondent-assessee is engaged in manufacture of excisable goods falling under Chapter Nos. 28, 29, 31 and 38 of the Central Excise Terrif Act, 1985.

3.2. The respondent-assessee was availing Cenvat Credit under the Cenvat Credit Rules, 2004 (for short ‘the Rules’) on Central Excise Duty paid on inputs, capital goods and input services.

3.3. A show-cause notice was issued on 22nd September, 2009 calling upon the respondent- assessee as to why :-

“(i) Central Excise duty amounting to Rs.2,98,15,482/- should not be recovered from them under Rule 14 of Cenvat credit Rules, 2004 read with Rule 6(b) of Cenvat Credit Rules, 2004 read with proviso to Section 11A of Central Excise Act, 1944:

(ii) Interest at appropriate rate should not be recovered from them under Rule 14 of Cenvat credit Rules, 2004 and or proviso to Section 11AB of Central Excise Act, 1944, on the duty so evaded amounting to Rs. Rs.2,98,15,4821-

(iii) Penalty should not be imposed upon them under Rule of 15(2) of Cenvat Credit Rules, 2004 under proviso to Section 11AC of Central Excise Act, 1944.”

3.4. The respondent was also issued second show-cause notice dated 13.05.2010 for subsequent period July, 2009 to December, 2009 for recovery of Central Excise duty amounting to Rs.35,79,520/- for the same cause as mentioned for the first show-cause notice.

3.5. The respondent-assessee by reply dated 11.10.2010 submitted that by Section 73 of the Finance Act, 2010, Rule 6 of the Rules was amended retrospectively in the manners specified in column (3) of the Eight Schedule with effect from 10th September, 2004 to 31st March, 2008. It was therefore contended by the respondent that due to the retrospective amendment of Sub-rule (7) of