CESTAT Chennai: Only Common CENVAT Credit Liable for Reversal Under Rule 6(3A); TNPL Gets Relief

March 23, 2026 : The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal has ruled that under Rule 6(3A) of the CENVAT Credit Rules, 2004, only common input credit used for both dutiable and exempted goods or services is subject to reversal, and credit exclusively attributable to dutiable goods cannot be factored into the computation.

The Tribunal set aside the demands, interest, and penalties imposed on M/s Tamil Nadu Newsprint and Papers Limited (TNPL), holding that the department’s interpretation was contrary to the statutory scheme.

The dispute arose from orders passed by the Commissioner of GST and Central Excise, Tiruchirappalli, alleging short reversal of CENVAT credit in respect of exempted activities such as electricity generation through windmills and trading of notebooks. TNPL had opted for proportionate reversal under Rule 6(3A) and restricted the computation to common input services.

Rejecting the department’s contention that “total CENVAT credit” must include even credit exclusively used for dutiable goods, the Tribunal held that such an interpretation would defeat Rule 6(1) and lead to denial of legitimately availed credit. It clarified that Rule 6 creates a clear distinction between exclusive and common credit, and only the latter is subject to apportionment.

On facts, the Bench found that TNPL had correctly identified common input services and reversed proportionate credit in line with the prescribed formula. It also noted that the value of electricity generated and trading turnover had been duly included for the purpose of computation, satisfying statutory requirements.

Importantly, the Tribunal held that once an assessee opts for reversal under Rule 6(3A), the department cannot compel adoption of the alternative method under Rule 6(3)(i), emphasizing that the options under Rule 6(3) are mutually exclusive.

The Bench further held that the adjudicating authority had travelled beyond the show cause notice by introducing new grounds and reinterpreting the formula, rendering the demand unsustainable on that ground as well.

On limitation, the Tribunal ruled that the extended period under Section 11A of the Central Excise Act, 1944 was not invocable, as the issue was purely interpretational and all relevant details were disclosed in statutory records and returns. In the absence of suppression or intent to evade duty, the invocation of extended limitation and imposition of penalties were held to be unjustified.

Accordingly, the Tribunal allowed both appeals with consequential relief, setting aside the impugned orders in entirety.

Case Details:
Case Title: M/s Tamil Nadu Newsprint and Papers Limited v. Commissioner of GST and Central Excise
Case No.: Excise Appeal Nos. 40499 & 40500 of 2018
Coram: Justice Dilip Gupta (President) and Mr. Vasa Seshagiri Rao (Member Technical)