2015 (3) TMI 78 - AT - Central Excise

Waiver of pre deposit - Input service credit - Trading activity - Held that - Applicant in their reply to the show cause notice categorically disputed the quantification of the demand in so far as that the demand was determined on the total value of the trading turnover of the entire company, which is ex-facie bad in law. We find that the adjudicating authority had not given any findings on this issue. It is noticed that the Tribunal in the case of Mercedes Benz India Pvt. Ltd (2014 (4) TMI 12 - CESTAT MUMBAI), held that exempted goods in Rule 2(e) CCR includes trading in prospective nature from 01.04.2011. Prima facie, we find in the present case, the applicants have reversed the proportionate input service credit and therefore, it is a fit case for waiver of predeposit of the entire amount along with interest and penalty. In view of the above, we waive pre-deposit of the entire amount along with interest and penalty and stayed its recovery till the disposal of the appeal - Stay granted.

Summary

Issues:
1. Recovery of input service credit used in trading goods.
2. Interpretation of Rule 2(e) of CCR, 2004.
3. Applicability of exemption notification dated 01.04.2011.
4. Quantification of demand and limitation period.
5. Pre-deposit of the entire amount, interest, and penalty.

Analysis:
1. The applicants, engaged in manufacturing lubricants and trading imported oils, faced recovery of input service credit used in trading goods. The adjudicating authority confirmed recovery under Rule 14 of the Cenvat Credit Rules, 2004, for the period 2006 to 2011. The applicants reversed a proportionate amount and disputed the recovery.

2. The Sr. Advocate argued based on Rule 2(e) of CCR, 2004, exempted services include taxable services exempt from service tax. He contended that prior to 01.04.2011, trading goods were not exempted services. Citing precedents, he challenged the sustainability of the show cause notices and quantification of demand based on the entire trading turnover.

3. The Revenue maintained that the explanation in the notification dated 01.04.2011 had retrospective effect. They argued that since the applicants did not opt under Rule 6(3) of CCR, they were liable to pay duty on trading goods. The Revenue cited tribunal decisions supporting the treatment of trading goods as exempted.

4. The Tribunal found that the applicants had already reversed the input service credit on trading goods before the show cause notice. The Tribunal noted discrepancies in the quantification of demand and the lack of findings by the adjudicating authority. Considering the reversal and the limitation period, the Tribunal waived pre-deposit of the entire amount, interest, and penalty.

5. The Tribunal granted a stay on the recovery pending appeal, emphasizing the need for an expedited hearing due to the amount involved and the relevance of the issue previously decided by the Tribunal in a similar case. The appeal was scheduled for an expedited hearing on 02.02.2015, and the stay application was allowed.