2014 (12) TMI 699 - HC - Central Excise

Availment of input service credit paid on commission in respect of trading activities - extended period of limitation - Held that - the pre-heater valued at ₹ 5.41 crores is the final product, which was manufactured and cleared from the place of removal, ie., from the appellant s factory. The remaining goods valued at ₹ 36.04 crores were not manufactured as final product and cleared from the place of the appellant. In such a case, it would not qualify for the benefit of cenvat credit under Rule 2(l) of the Cenvat Credit Rules, as rightly upheld by the Commissioner (Appeals) and the Tribunal. The service tax paid on sales commission in respect of procuring orders by M/s.Adhunik Corporation cannot be utilised by the appellant for taking credit for the goods not manufactured as a final product and cleared from the appellant s manufacturing unit. On an understanding of the Rule 2(l) of the Cenvat Credit Rules, there is no manner of doubt that input service means goods which is used by the manufacturer directly or indirectly in relation to the manufacturing of final product and clearance of final product from the place of removal. In the present case, the Department has allowed cenvat credit in respect of the value of goods amounting to ₹ 5.41 crores and denied for the balance. We find no error in such determination, which is in consonance with Rule 2(l) of the Cenvat Credit Rules. - there is a clear finding that the appellant had not disclosed the availment of input service credit on commission in respect of trading activities and it came to the knowledge of the Department only on verification of the documents, such as, contract agreements, commission agreements etc. and therefore the plea of limitation was rightly rejected by the Authorities below. - No substantial question of law arises - Decided against assessee.

Issues:
1. Whether trading activity can be considered as an exempted service prior to a specific date?
2. Can an amendment to the definition of exempted service be applied retrospectively?
3. Is the reversal of credit on input service justified without a specific computation method?
4. Are only input services directly or indirectly related to the manufacture of taxable goods eligible for credit?
5. Can a demand be quantified using a method not prescribed in the Act or Rules?

Analysis:
1. The appellant engaged in manufacturing parts of pre-heater and supplying them to a cement company under a contract. The Department alleged that a significant portion of the goods supplied was traded from a third party source, leading to a dispute regarding service tax credit. The Adjudicating Authority held that only goods manufactured and supplied directly by the appellant were eligible for Cenvat Credit, not traded goods. Consequently, a demand was confirmed against the appellant.

2. The Commissioner (Appeals) and the Tribunal upheld the Adjudicating Authority's decision, emphasizing the restrictive interpretation of Rule 2(l) of the Cenvat Credit Rules, which limits credit to input services directly or indirectly used in manufacturing final products. The Tribunal specifically highlighted that credit for trading goods was rightfully denied as they were not integrally connected to the manufacturing process.

3. The Tribunal rejected the appellant's argument that the service tax credit on trading activities should be allowed under Rule 2(l) of the Cenvat Credit Rules. The decision was based on the understanding that input service must be linked to the manufacture of final products, which did not apply to the traded goods in this case. The denial of credit for trading activities was deemed appropriate and in line with established principles.

4. Regarding the plea of limitation, it was determined that the appellant failed to disclose the input service credit on commission related to trading activities. The Department discovered this omission during document verification, leading to the rejection of the plea of limitation. The Authorities found no merit in the appellant's appeal, concluding that no substantial question of law arose for consideration.

5. Ultimately, the Civil Miscellaneous Appeal was dismissed, with no costs awarded. The judgment affirmed the denial of Cenvat Credit for trading goods and upheld the demand raised by the Department. The decision underscored the importance of adhering to the provisions of the Cenvat Credit Rules and ensuring that input services are directly or indirectly linked to the manufacturing process to qualify for credit.

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