CESTAT Hyderabad Clarifies: Reimbursement of Rule 6(3) Amount Is Not “Excise Duty” Under Section 11D

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled in favour of GR Power Switchgear Ltd. Vs Commissioner of Central Tax (CESTAT Hyderabad), holding that reimbursement of amounts reversed under Rule 6(3) of the Cenvat Credit Rules, 2004 (CCR) cannot be treated as “amount collected as Excise duty” merely because it was reflected in the invoice under a column titled “Excise duty”.

The Tribunal, by its order dated 27.05.2019 (Order-in-Appeal No. HYD-EXCUS-MD-AP2-0009-19-20, period involved 2015-16 and 2016-17), set aside a demand of Rs. 7,04,352/- raised under Section 11D of the Central Excise Act, 1944, along with the interest and penalties that had been upheld by the Commissioner (Appeals). The appeal of GR Power Switchgear Ltd. was allowed with consequential relief.

Factual Background

Nature of Business and Exempted Clearances

• The assessee, M/s GR Power Switchgear Ltd., was engaged in manufacturing both:

  • Dutiable excisable goods, and
  • Exempted excisable goods.

• During the relevant period (2015-16 and 2016-17), the assessee cleared certain goods without payment of Central Excise duty under:

  • Notification No. 3/2004-CE, and
  • Notification No. 12/2012-CE.

These notifications fully exempted the goods in question from Excise duty, so there was no levy of duty on such clearances.

Common Inputs and Rule 6(3) Compliance

The assessee used common inputs to manufacture both dutiable and exempted goods and did not maintain separate accounts for inputs. Consequently, it opted to follow Rule 6(3)(a)(i) of the Cenvat Credit Rules, 2004. Under this mechanism:

• The assessee reversed an amount equal to 6% of the value of exempted goods.
• This 6% reversal was:
  • Properly accounted for in the books of account, and
  • Disclosed in the statutory ER-1 returns.

Thus, the obligation under Rule 6(3)(a)(i) was independently discharged by the assessee at the time of clearance of exempted goods.

Agreement With Buyer for Reimbursement

GR Power Switchgear Ltd. entered into a contractual arrangement with M/s Megha Engineering & Infrastructure Ltd. Under this agreement:

• The purchaser expressly agreed to reimburse the amount that the assessee was required to reverse under Rule 6(3) of the Cenvat Credit Rules, 2004.
• In execution of this agreement, the assessee recovered from the buyer an amount equivalent to the 6% reversal already made under Rule 6(3)(a)(i).

Invoice Presentation Issue

The core controversy arose from the way this reimbursement was shown in the invoices:

• The assessee’s invoice format had only one duty-related field, titled “Excise duty”.
• Since there was no separate column for “Rule 6(3) reversal” or “reimbursement”, the assessee reflected the reimbursed amount under the “Excise duty” column, even though:
  • The goods were exempt, and
  • The amount did not represent any Excise duty legally payable or paid on those goods.

All statutory records and ER-1 returns, however, consistently showed that the assessee had already reversed 6% under Rule 6(3)(a)(i) and that the recovered sum was a reimbursement of that reversal.

Department’s Stand and Proceedings

Audit Objection

During departmental audit, officers noticed that the invoices issued to M/s Megha Engineering & Infrastructure Ltd. displayed an amount in the “Excise duty” column. On this basis, the Department formed the view that:

• The assessee had collected an amount as Excise duty from the buyer.
• Consequently, under Section 11D of the Central Excise Act, 1944, any such amount collected as representing duty of excise must be credited to the Government.

Demand Under Section 11D

The Department, proceeding on the above premise, initiated action culminating in:

• A demand of Rs. 7,04,352/- under Section 11D of the Central Excise Act, 1944.
• Interest and penalties being imposed.
• The Commissioner (Appeals) upholding this demand vide Order-in-Appeal dated 27.05.2019.