2015 (12) TMI 249 - AT - Central Excise

Availment of CENVAT Credit - Trading activity - Held that - Explanation added to the Rule 2(e) w.e.f. 1.4.2011 has to be read with Explanation I (c) added to sub-rule 3(d) of the Rule 6 and these provisions, which adversely affect an assessee, cannot be given retrospective effect. The finding of the Commissioner in the impugned order that while the amendment to the definition of exempted service in Rule 2(e) w.e.f. 1.4.2011, by adding an explanation to it, is of clarificatory nature and, therefore, is applicable retrospectively but the provision regarding value of the trading service in Explanation (I)(c ) to sub-rule (3D) of Rule 6, also introduced w.e.f. 01.04.2011, cannot be given retrospective effect and is applicable prospectively and accordingly during the period prior to 01.04.2011, the value of the trading services would be the value of the goods traded on the sale price of the goods is absurd - when the goods traded are the cenvated inputs in respect of which cenvat credit availed, has been reversed as per the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004, no reversal of the cenvat credit in respect of the input services like GTA service and transit insurance service availed at the time of receipt of the goods is required in view of the judgment of the Punjab High Court in the case of Punjab Steels (2010 (7) TMI 252 - PUNJAB AND HARYANA HIGH COURT) and also the judgment of the Tribunal in the case of Chitrakoot Steel & Power Pvt. Ltd. reported in 2007 (11) TMI 135 - CESTAT, CHENNAI . Some cenvated services received may be those which are not connected with receipt of inputs and these services like security, telephone services, sales promotion etc. may have been commonly used for manufacturing as well as trading activity and to the extent some cenvated services were used for trading activities, the cenvat credit would not be admissible. But the amount of cenvat credit to be reversed in proportion to the volume of trading activity has not been quantified by the Department - pre-deposit of ₹ 7 lakhs in addition to the amount already paid would be sufficient for hearing of the appeal - Partial stay granted.

Summary

Issues:
- Whether the sale of cenvated inputs as trading activity is exempted service under Rule 2(e) of the Cenvat Credit Rules, 2004.
- Whether the amendment to Rule 2(e) of the Cenvat Credit Rules, 2004, regarding exempted services applies retrospectively.
- Whether the value of trading services should be calculated as the sale price of goods or the difference between sale price and cost of goods sold.
- Whether reversal of cenvat credit in respect of input services is required when inputs are removed as such.
- Whether the appellant is liable to pay an amount equal to 8%/6% of the value of trading service.
- Whether the appellant has a strong prima facie case in their favor for waiver of pre-deposit.

Analysis:
1. The appellant, a manufacturer of Steel Pipes and Tubes, availed cenvat credit on inputs and services. The dispute arose when the department contended that selling cenvated inputs as trading activity is an exempted service, demanding a significant amount from the appellant. The Commissioner upheld this demand, leading to the appeal.

2. The appellant argued that the amendment to Rule 2(e) of the Cenvat Credit Rules, 2004, regarding exempted services should not apply retrospectively. They emphasized that the value of trading services should be the difference between sale price and cost of goods sold, not the sale price alone, as determined by the Commissioner.

3. The tribunal found the department's approach absurd and held that the amendment to Rule 2(e) cannot be given retrospective effect. They stated that no reversal of cenvat credit in respect of input services is required when inputs are removed as such, citing relevant judgments.

4. While some cenvated services used for trading activities may not be admissible for credit, the department failed to quantify the amount to be reversed. The tribunal directed the appellant to deposit a reasonable amount within a specified period, considering their plea and the amount already paid, to waive the pre-deposit requirement.

5. The tribunal's decision favored the appellant's arguments, highlighting the incorrectness of the department's demand and emphasizing a fair approach to the pre-deposit requirement, ensuring a balanced resolution of the dispute.