2017 (9) TMI 1869 - AT - Central Excise

CENVAT Credit - common input services used for the manufacturing activity of finished goods and for the trading activities - input services - Management Consultancy Services - HELD THAT - The provisions of Cenvat Credit Rules were amended by insertion of an explanation which indicated trading activity is an exempted services. Hon ble High Court of Madras in the judgment of M/S. FL SMIDTH PVT. LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE 2014 (12) TMI 699 - MADRAS HIGH COURT , settled the law that explanation inserted from 1-4-2011 will apply for the period prior to 1-4-2011 also and following the said ratio, it is held that the trading activities undertaken by the appellant during the period in question has to be treated as an exempted services - Since it is undisputed that appellant is manufacturer of excisable goods and is discharging appropriate central excise duty, the proportionate Cenvat credit attributable to the trading activity needs to be reversed and the same should be arrived based upon the provisions of Rule 6(3A) of the Cenvat Credit Rules, 2004. CENVAT Credit - input services - Management Consultancy Services - HELD THAT - The said sub-rule starts with a non obstante clause, which would mean that this sub-rule has to be read independently and it provides for availment entire Cenvat credit even if the same is used for manufacturing of dutiable and exempted goods and are providing taxable and exempted services. In my view, appellants have made out a case for availment of the entire Cenvat credit of the service tax paid on Management Consultancy Services as per the above reproduced sub-rule - demand set aside. Demand of interest - HELD THAT - Since the demands are set aside on this ground, the question of interest does not arise. Penalty - HELD THAT - Since the issue is of interpretation no penalty is warranted on the appellant - The penalties are set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Eligibility for Cenvat credit on common input services for manufacturing and trading activities, interpretation of Rule 6(5) of Cenvat Credit Rules, 2004, applicability of amendments regarding trading activities pre and post-1-4-2011.

Analysis:
The appeals raised a common question of law regarding eligibility for Cenvat credit on common input services for manufacturing and trading activities. The revenue authorities contended that credit needed to be reversed proportionately for trading activities pre and post-1-4-2011. The lower authorities ruled against the appellant, confirming demands with interest and penalties.

The appellant argued that prior to 1-4-2011, there was no definition of 'trading activity' as exempted goods, and any clarification should apply prospectively. They also claimed that Rule 6(5) of the Cenvat Credit Rules allows for entire credit without proportionate reversal for trading activities. The appellant sought retrospective application of Rule 6(5) even pre-1-4-2005.

The Departmental Representative cited a Madras High Court judgment stating that amendments effective from 1-4-2011 apply from that date, supporting the disallowance of Cenvat credit as upheld by lower authorities.

The Tribunal considered whether the appellant could avail proportionate Cenvat credit for common input services used in manufacturing and trading activities, and whether the entire credit should be denied. Regarding Management Consultancy Services, the Tribunal analyzed Rule 6(5) of the Cenvat Credit Rules, which allows for full credit unless services are used exclusively for exempted goods or services. The Tribunal allowed the appellant's appeal on this ground, setting aside the demands.

The Tribunal found no basis for penalties due to the interpretational nature of the issue. Thus, penalties were set aside. The appeals were disposed of accordingly on 26-9-2017.