2012 (12) TMI 678 - AT - Central Excise

Non maintenance of separate accounts for two types of activities - input services used for manufacturing and trading activities separately - liable to pay duty @10%/5% on their clearances of goods in trading activity as per Rule 6(2) of the CENVAT Credit Rules, 2004 - Held that - As the applicants has not taken credit of common input service attributable to trading activity they covered under Rule 6(1) of CENVAT Credit Rules, 2004 and the provisions of Rule 6(2) of CENVAT Credit Rules, 2004 are not applicable. Therefore, they are not liable to pay 10%/5% of the value of the traded goods - applicant has made out a case for 100% waiver of pre-deposit.

Summary

Issues:
- Demand of duty confirmed for not maintaining separate accounts for input services used in manufacturing and trading activities
- Interpretation of Rule 6(2) of the CENVAT Credit Rules, 2004 regarding input service credit
- Applicability of Rule 6(1) of the CENVAT Credit Rules, 2004
- Invocation of extended period of limitation for demand under show-cause notice

Analysis:
The judgment addressed the issue of a demand of duty confirmed against the applicant for not maintaining separate accounts for input services used in manufacturing and trading activities. The Revenue contended that the applicants violated Rule 6(2) of the CENVAT Credit Rules, 2004 by not maintaining separate accounts for input service credit attributable to manufacturing and trading activities. The applicants, however, argued that they followed a method where they took full credit for manufacturing, no credit for trading, and proportionate credit for common inputs. The Tribunal found that the applicants did not take proportionate credit for input service attributable to trading activity, leading to a conclusion that Rule 6(1) of the CENVAT Credit Rules, 2004 applied, and Rule 6(2) was not applicable. Consequently, the applicants were not liable to pay duty on the value of traded goods.

The judgment also delved into the interpretation of Rule 6(2) of the CENVAT Credit Rules, 2004. The Revenue asserted that the failure to maintain separate accounts for input service credit violated this rule, leading to the duty demand. However, the Tribunal analyzed the method adopted by the applicants and determined that since they did not avail proportionate credit for trading activity, Rule 6(1) was applicable instead of Rule 6(2), resulting in a favorable decision for the applicants.

Furthermore, the issue of the invocation of the extended period of limitation for the demand under the show-cause notice was discussed. The applicants argued that the extended period was not applicable as the department was aware of the non-availment of input service credit for trading activity since 2006. The Tribunal considered this argument and found in favor of the applicants, leading to the waiver of the requirement of pre-deposit of the duty, interest, and penalty amount, with a stay on recovery during the appeal process.

In conclusion, the judgment provided a detailed analysis of the issues related to the demand of duty, the interpretation of relevant rules, and the invocation of the extended period of limitation, ultimately ruling in favor of the applicants based on the method of input service credit availed by them and the applicability of the CENVAT Credit Rules.