Procedural lapse is condonable and denial of substantive right is unjustified; Tribunal (Chennai) allows appeal under R. 6 (3A)(II) of Cenvat Credit Rules, 2004

The Coram of Sulekha Beevi (Judicial Member) and P. Anjani Kumar (Technical Member), CESTAT (Chennai) allowed an appeal which was filed against the order of the Commissioner (Appeals), wherein the Commissioner (Appeals) by rejecting the method adopted by the appellant under Rule 6(3A)(ii) of CCR Rules, 2004, to reverse the Credit, had compelled the appellant to follow method  as per Rule 6(3A)(i).

Brief Facts of the Case:

The appellants had entered into a Business Solutions Agreement and another Business Promotion Agreement with Amazon Ltd. and as per the agreement the appellants had to store various merchandizes in the Amazon warehouse and facilitate dispatch of the goods for which Amazon was providing BSS and warehousing services. Service tax was collected from the appellants by Amazon for such services provided to appellant as these were input services for the appellant. The appellants were thus engaged not only in trading but also providing taxable service. The appellants started availing input tax credit on the service tax collected from them by Amazon on Business Support Service and Storage and Warehousing Services. They were advised that they were not eligible to avail credit on such service tax paid to M/s.Amazon and therefore they, as an abundant caution to avoid penal proceedings, reversed the credit by making cash payment along with interest for the input tax credit availed by them during this period. This was informed to the department. Since the appellants had utilized the input services for trading (exempted services) as well as taxable output services, they opted for reversal of proportionate credit as provided under Rule 6 (3A) (ii) of Cenvat Credit Rules, 2004. As the credit reversed was in excess of the proportionate credit to be reversed, they had filed a refund claim. After due process of law, the original authority rejected the refund claim entirely. In appeal, the Commissioner (Appeals) held that appellants will have to reverse/pay credit along with interest as per Rule 6(3A) (i) @ 7% of the value of exempted services and therefore were eligible for a partial refund and appropriate interest. Aggrieved by which, the instant appeal was filed.

The Tribunal observed that the appellant has been compelled to reverse credit @ 7% of the value of exempted services under Rule 6 (3A) (i) read with Rule 6 (3D) (c) only for the reason they have not followed the procedure of intimating the department with regard to the option exercised. The Tribunal laying emphasis on the judgment of the Tribunal in Philips Carbon Black Ltd. v. CCE & ST Durgapur, 2020 (1) TMI 530-CESTAT Kolkata, held that non-compliance with the procedure prescribed under Rule 6 (3A) of the CCR does not result in losing substantive right to avail the option of reversing proportionate credit as envisaged in Rule 6(3) (i); That procedural lapse is condonable and denial of substantive right is unjustified keeping in mind the above case.

The Tribunal allowed the appeal and held that view taken by the Commissioner (Appeals) that the appellant has to reverse credit as per Rule 6 (3A) (i) was against the provisions of law.

Author’s Comment:

The view taken by the Hon’ble CESTAT is already a settled position of law, which has been settled in the following cases:

  1. Mercedes Benz India (P) Ltd., 2015 (40) STR 381 (Tri.- Mumbai)
  2. Dalmia Bharat Sugar and Industries Ltd. and Ors. MANU/CE/0873/2016
  3. Indraprastha Gas Limited, MANU/CE/0926/2017
  4. Tata Technologies Ltd, 2016 (42) S.T.R. 290 (Tri.- Mumbai
  5. M/S. Alstom T & D India Limited & Schneider Electric Infrastructure Limited Versus The Commissioner Of Central Excise & Service Tax, 2020 (3) TMI 74 – CESTAT Chennai

However, the department is failing to follow the already set precedent and is deciding against the assessees, despite knowing that the stand of the department would be tested before CESTAT, and would be set aside.

The Judgement of the Hon’ble CESTAT (Chennai) is yet another pronouncement strengthening the already set precedent.


Read the Order at: Rockey Marketing_CESTAT Chennai

Yuvraj is an advocate and has completed his B.A. LL.B(Hons) from RGNUL-Punjab. He is a practicing advocate and has been involved in matters pertaining to GST and other indirect taxes as well as Direct Tax. He is active in Writ Courts and has involvement in a few landmark judgments like Pitambra Books Pvt. Ltd. V. Union of India (W.P.C. No. 627 of 2020), and represented Sales Tax Bar Association (Delhi) to resolve GST issues and glitches.