2014 (7) TMI 121 - AT - Central Excise

CENVAT credit - Trading activity - Duty demand - Penalty - Non maintenance of separate accounts for taxable and non taxable activities - Applicable provision - Held that - Recovery of wrongly availed credit is provided for under Rule 14 of CCR, 2004. If the credit is utilized for payment of excise duty, the applicable provisions are Rule 14 read with Section 11A. if the appellant is mainly a service provider, recovery will be made under the said rule 14 read with section 73 of the Finance Act. In the present case, the appellant is a manufacture of excisable goods and the credit taken on input services has been utilized for payment of duty on excisable goods. Therefore, the correct provision for recovery of wrongly availed credit is Rule 14 of CCR, 2004 read with Section 11A of the Central Excise Act, 1944. Lack of Jurisdiction - Held that - Wrongly availed credit has to be recovered from the person who has availed the credit and not from the person who has distributed the credit. In the present case, it is the appellant who is a central excise registrant who has availed the credit and therefore, recovery of wrongly availed credit has to be made from the appellant by the jurisdictional excise authorities. Therefore, we do not find any lack of jurisdiction in the present case. Whether CENVAT Credit can be taken in respect of trading prior to 1-4-2011 - appellant is not an output service provider in respect of all the traded goods and no evidence has been placed before us in this regard. In such a situation, the question of taking credit on input service and its utilization thereof cannot be permitted at all prior to 1-4-2011 - Following decision in case of Mercedes Benz 2014 (4) TMI 12 - CESTAT MUMBAI . Whether extended period of time could have been invoked for recovery of credit wrongly taken - Knowledge/awareness of the department is not a relevant factor for invoking extended period of time. It is not the appellant s case that they had declared to the department the fact of availing credit attributable to the trading activity either in the statutory returns filed or otherwise. The facts on record prove otherwise. The decision of this Tribunal in the case of Tigrania Metal & Steel Industries 2001 (3) TMI 155 - CEGAT, COURT NO. II, NEW DELHI and of the hon ble High Court of Gujarat in the Neminath Fabrics case 2010 (4) TMI 631 - GUJARAT HIGH COURT support this view. In view of the above factual and legal position, invocation of extended period of time cannot be faulted at all - Conditional stay granted.

Issues Involved:

1. Applicability of Rule 14 of CCR read with Section 73 of the Finance Act, 1994 vs. Section 11A of the Central Excise Act, 1944 for recovery of ineligible service tax credit.
2. Validity of the show cause notice due to lack of particularization of services.
3. Retrospective application of the formula prescribed under Rule 6(3A) of the CCR for quantifying ineligible credit.
4. Appropriateness of relying on the Orion Appliances case for disallowing CENVAT credit.
5. Permissibility of extended time period for confirming the demand.
6. Financial hardship and requirement of pre-deposit.

Detailed Analysis:

1. Applicability of Rule 14 of CCR and Relevant Sections for Recovery:

The appellant contended that the recovery of ineligible service tax credit should have been made under Rule 14 of CCR read with Section 73 of the Finance Act, 1994, rather than Section 11A of the Central Excise Act, 1944. The Tribunal held that the recovery of wrongly availed credit is provided under Rule 14 of CCR, 2004. Since the appellant is a manufacturer of excisable goods and utilized the credit for payment of duty on excisable goods, the correct provision for recovery is Rule 14 read with Section 11A of the Central Excise Act, 1944.

2. Validity of the Show Cause Notice:

The appellant argued that the show cause notice was invalid as it did not particularize the services on which credit was taken for trading activities. The Tribunal found this contention incorrect and untenable, stating that the recovery should be made from the person who availed the credit, which in this case is the appellant, a central excise registrant. Thus, the jurisdictional excise authorities were correct in issuing the notice.

3. Retrospective Application of Rule 6(3A) of CCR:

The appellant argued against the retrospective application of the formula prescribed under Rule 6(3A) of CCR for quantifying ineligible credit. The Tribunal referred to the Mercedes Benz case, which held that trading was not a taxable service prior to 1-4-2011 and the amended provisions from 1-4-2011 do not have retrospective effect. Therefore, the credit of service tax paid on common input services should be apportioned based on the turnover of manufactured and traded goods, and the appellant was not eligible for the credit ab-initio.

4. Reliance on the Orion Appliances Case:

The appellant contended that the adjudicating authority erred in relying on the Orion Appliances case. The Tribunal noted that the Mercedes Benz decision, a Division Bench decision, prevails over the single member decisions cited by the appellant. Furthermore, the facts in those cases were distinguishable as the appellants therein were rendering output services, unlike the present case where the appellant is not an output service provider for all traded goods.

5. Extended Time Period for Confirming the Demand:

The appellant argued that the extended time period for confirming the demand was not permissible as the department was aware of the credit availed for trading activities. The Tribunal rejected this argument, stating that knowledge or awareness of the department is not relevant for invoking the extended period. The appellant did not declare the credit attributable to trading activities in statutory returns, justifying the invocation of the extended period.

6. Financial Hardship and Requirement of Pre-Deposit:

Regarding financial hardship, the Tribunal noted that no satisfactory explanation or evidence was provided by the appellant. Citing decisions from the Apex Court and the High Court, the Tribunal directed the appellant to make a pre-deposit of 50% of the credit disallowed within eight weeks, with the balance of dues waived and recovery stayed during the appeal's pendency.

Conclusion:

The Tribunal upheld the adjudicating authority's decision, requiring the appellant to pre-deposit 50% of the disallowed credit and confirming the legal provisions and jurisdictional authority for recovery. The extended period for demand was justified, and the retrospective application of the formula for quantifying ineligible credit was deemed inappropriate.

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