2015 (10) TMI 1156 - AT - Central Excise

Reversal of CENVAT Credit - Trading activity - Held that - In the impugned order, none of the lower authorities have considered the defence taken by the assessee that they have cleared inputs as such and no verification has been done to that effect whether the assessee has cleared inputs as such or was involved in the activity of trading. Show cause notice has been issued only on the basis of figures shown in the balance sheet. For removal of inputs as such, Rule 3(5) clearly states that if inputs is removed as such, the assessee is required to reverse only Cenvat credit availed on such inputs. If inputs is removed as such, in that case the assessee is required to reverse the credit availed on the inputs and not required to reverse proportionate credit on inputs service pertaining to such goods and required 6% /8% of the value of such goods. As revenue has failed to produce any evidence to show that appellant was involved in the trading activity, it may cleared inputs as such. In these set of facts, Cenvat credit taken by the assessee on the input which are cleared as such, is attributable to proportionate reversal is not supported by cogent reasons. Therefore, as per the provisions of Rule 3(5) of Cenvat Credit Rules, 2004 the assessee was to reverse the Cenvat credit availed on inputs cleared as such. Therefore, I hold that assessee is not required to pay any amount equivalent to 6% /8% of the value of inputs cleared as such or reversal of proportional credit attributable to input cleared - Decided against Revenue.

Issues:
1. Reversal of Cenvat credit on trading activity.
2. Interpretation of Rule 2(e) of Cenvat Credit Rules, 2004.
3. Proportionate demand of 6% / 8% of the value of trading activity.
4. Application of Rule 3(5) of Cenvat Credit Rules, 2004.

Analysis:

Issue 1: Reversal of Cenvat credit on trading activity
The case involved an appeal by both the assessee and the revenue against the same impugned order regarding the reversal of Cenvat credit availed on inputs involved in trading activity. The revenue contended that the trading activity was exempted as per Rule 2(e) of Cenvat Credit Rules, 2004, and thus, the assessee was required to reverse proportionate Cenvat credit. The adjudicating authority upheld this proposal. However, the appellate authority considered the defense of the assessee, who argued that they had cleared inputs as such and were not involved in trading activity. The appellate tribunal ruled in favor of the assessee, stating that as per Rule 3(5) of the Cenvat Credit Rules, 2004, the assessee was only required to reverse the Cenvat credit availed on inputs cleared as such, not the proportionate credit on input services related to such goods.

Issue 2: Interpretation of Rule 2(e) of Cenvat Credit Rules, 2004
The revenue argued that trading activity was exempted from a certain date based on an amending notification issued on 1.4.2011, expanding the scope of exempted services to include trading activity. The revenue contended that the assessee was liable to pay 6% / 8% of the value of trading conducted during the relevant period. However, the tribunal found that the revenue failed to provide evidence showing the assessee's involvement in trading activity, and as per Rule 3(5), the assessee was only required to reverse the credit on inputs cleared as such, not the proportionate credit on input services.

Issue 3: Proportionate demand of 6% / 8% of the value of trading activity
The revenue sought a proportionate demand of 6% / 8% of the value of trading activity conducted by the assessee during the impugned period. However, the tribunal ruled in favor of the assessee, emphasizing that without evidence of trading activity and considering the provisions of Rule 3(5), the assessee was not liable to pay the demanded amount.

Issue 4: Application of Rule 3(5) of Cenvat Credit Rules, 2004
The tribunal extensively analyzed Rule 3(5) of the Cenvat Credit Rules, 2004, which stipulates that if inputs are removed as such, the assessee is only required to reverse the Cenvat credit availed on those inputs. The tribunal found that the revenue's case lacked merit as they could not prove the trading activity and ruled that the assessee was not obligated to pay any amount equivalent to the demanded percentage of the value of inputs cleared as such.

In conclusion, the tribunal allowed the assessee's appeal and dismissed the revenue's appeal based on the interpretation and application of the relevant rules and lack of evidence supporting the revenue's claims.

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