The Cenvat Credit Rules permit reversal of credit only for inputs used in exempt products, clarifying that services related to dutiable products remain eligible for credit.

Per R. BHAGYA DEVI:

The appellant M/s. JSW steel Ltd had an integrated steel plant where they manufacture iron and steel products. They procure various inputs, input services and capital goods on which they avail cenvat credit in terms of Cenvat Credit Rules 2004 ( CCR 2004). Apart from manufacturing various dutiable and exempted goods, they are also involved in generation of electricity by consuming inputs such as coal, gas, etc. The electricity so generated in the power plant is partly used by the appellant within the factory and the excess portion is wheeled out to various other entities. The appellant had taken credit on input and inputs services used in the generation of electricity and in terms of Rule 6(3)(ii) of the , 2004 opted to follow the procedure of proportional credit reversal under Rule 6(3A) of the 2004. They had informed the department about exercise of the option to reverse proportional credit and accordingly, reversed the credit on proportionate basis provisionally each month. At the end of the financial year, final reversals were done and intimated to the department. However, the department issued a show-cause notice stating that the reversals done by the appellant was not in accordance with law and the amount reversed was much less than what had to be reversed as per Rule 6(3A) of , 2004. On adjudication, an amount of Rs.24,68,32,910/- was confirmed along with interest and penalty.

2. The learned counsel on behalf of the appellant submitted that Rule 6(3A) of the CCR , 2004 is applicable only to the inputs and input services used in the manufacture of dutiable goods and exempted goods; but the department has taken the entire input service credit which has been availed by the appellant. It is submitted that the Rules envisage reversal of the credit that is only utilised for the manufacture of exempted goods. It is further submitted that the Central Government vide Notification No.13/2016-C.E (NT) dated 1.3.2016 amended the 2004, to ensure that the credit so reversed for inputs/input services in relation to exempted goods does not include credit in relation to dutiable goods in terms of Rule 6(3A). Pursuant the amendment, the amount to be reversed under Rule 6(3A) is as follows:

A = Ineligible Cenvat Credit (used exclusively in exempted activities) and;

D = Ineligible Common Credit (common credit attributable towards exempted goods/services)

Therefore, the intention has always been to restrict cenvat credit only to the extent that is used in exempted products/services. Further, reliance is placed on Circular D.O.F. No.334/8/2016-TRU dated 29.2.2016 where it has been stated that as per the formula, the full credit of inputs/input services used exclusively in final products excluding exempted goods will be available to the appellant. It is also stated that only the common credit should be considered for ascertaining the credit to be reversed on the exempted products. Therefore, based on the said amendment and the Circular, the appellant had correctly determined the reversal of the credit and accordingly, the credit reversed by them was in accordance with the law and the impugned order needs to be set aside.

2.1 He also relied on the following case laws:

i. Commissioner of Central Excise vs. Reliance Industries Ltd. : 2019 (28) GSTL 96 (Tri.-Ahmd.)

ii. E-Connect Solutions (P) Ltd. vs. Commissioner of C. Ex & CGST: 2021 (376) ELT 678 (Tri.-Del.)

iii. Commissioner of C. Ex. Bangalore vs. Pragathi Concrete Products (P) Ltd.: 2015 (322) ELT 819 (SC)

2.2 Further, it is submitted that th