2019 (8) TMI 1644 - AT - Service Tax

CENVAT Credit - common input services used/utilised for both manufacturing of excisable goods and for the trading activities - non-compliance with the requirement of Rule 6 of the Cenvat Credit Rules, 2004 - impugned order was passed mainly on the ground that the appellant did not comply with the provisions of sub-rule (3) of Rule 6 ibid inasmuch as neither it had paid the amount provided in said rule nor complied with the procedures and the conditions laid down therein - time limitation - HELD THAT - The term exempted service has been defined in Rule 2(e) ibid. The said phrase was brought into the ambit of such definition clause by way of an explanation appended to the said rule w.e.f. 1-4-2011. The issue whether, the activity of trading should fall within the ambit of exempted service was highly contentious and there were divergent views by the judicial forums. Even, the issue regarding retrospective or prospective application of such explanation clause was also highly debatable. Thus, under such circumstances, payment of amount as per the requirement of sub-rule (3) of Rule 6 ibid was not diligently complied with by the appellant, as asserted. However, it is noticed that based on the records maintained by the appellant, the Cenvat amount attributable to the common input services used for the trading activity was reversed. On proper scrutiny of the case records, we are convinced that the extended period of limitation cannot be invoked against the appellant for confirmation of the adjudged demands inasmuch as the charges of suppression, fraud, wilful misstatement etc., cannot be invoked for bona fide interpretation of the statutory provisions placed by the appellant. This Tribunal in the case of CST, NEW DELHI VERSUS M/S. AVL INDIA PVT. LTD. 2017 (3) TMI 793 - CESTAT NEW DELHI has held that the extended period of limitation cannot be invoked to the issues concerning interpretation of the provisions contained in the explanation to Rule 2(e) ibid and accordingly, has held that the demand, if any, should only be confined to the normal period. It has also been held that penalty cannot be imposed on the assessee. Time Limitation - HELD THAT - There are no merits in the impugned order, insofar as it has confirmed the adjudged demands under the extended period of limitation. With regard to the demand pertains to the normal period, the Lower Adjudicating Authority has denied the benefit to the appellant on the ground that the conditions laid down in Rule 6(3A) have not been duty complied with. It is an accepted principle of law that non-filing of intimation before the department is a procedural lapse, for which the substantive right to avail the benefit conferred under the statute cannot be whittled down. Since the appellant submits that the procedure laid down under sub-rule (3A) of Rule 6 ibid have been duly complied with by it, the matter should be remanded to the Original Authority for ascertaining compliance of such provisions by the appellant. If the laid down procedures have been complied with, no demands shall be confirmed under the normal period of limitation. However, it is made clear that in either of the situation, no interest demand shall be confirmed on the appellant. Appeal allowed by way of remand.

Issues involved:
1. Compliance with Rule 6 of the Cenvat Credit Rules, 2004 for availing Cenvat credit on common input services used for both manufacturing and trading activities.
2. Invocation of extended period of limitation for recovery of demands.
3. Disclosure of trading activity in ST-3 returns and implications on limitation period.
4. Interpretation of the term "exempted service" and its applicability to trading activities.
5. Reversal of Cenvat credit attributable to trading activities without separate accounts.
6. Legal position on availing Cenvat credit for trading activities.
7. Compliance with Rule 6(3A) of Cenvat Credit Rules, 2004 for availing benefits under the normal period of limitation.

Analysis:
1. The appeal challenged the order passed by the Commissioner of Customs, Central Excise, and Service Tax, Hyderabad, regarding the appellant's availing of Cenvat credit on common input services used for manufacturing and trading activities. The appellant reversed proportionate Cenvat credit for the common input services but was disputed by the Department for not complying with Rule 6 of the Cenvat Credit Rules, 2004.
2. The appellant contended that the proceedings initiated were time-barred as the show cause notice was issued beyond the normal period prescribed by the statute. The appellant argued against the invocation of the extended period of limitation without elements of fraud, suppression, or misstatement.
3. The Revenue argued that the appellant did not disclose trading activities in the ST-3 returns, leading to the invocation of the extended period of limitation based on subsequent audit reports.
4. The Tribunal analyzed the definition of "exempted service" under Rule 2(e) of the Cenvat Credit Rules, 2004, especially concerning the applicability to trading activities. The Tribunal referred to precedents and held that the demand should be restricted to the normal period, and no penalty could be imposed on the appellant.
5. It was established that the appellant, engaged in trading activities, was not eligible for Cenvat credit on common input services attributable to trading during the material time. The Tribunal emphasized the need for separate accounts to claim credit only for taxable output services.
6. The Tribunal concluded that the demand for reversal of credit attributable to trading activities was legally sustainable, and the appellant was liable to reverse such credit. The issue was deemed a matter of legal interpretation, necessitating restriction of the demand to the normal period without imposing any penalty.
7. The Tribunal remanded the matter to the Original Authority to ascertain the appellant's compliance with Rule 6(3A) of the Cenvat Credit Rules, 2004, for quantifying any demand payable within the normal period. It was clarified that no interest demand would be confirmed on the appellant in either situation. The appeal was allowed, setting aside the impugned order, and the appellant was not liable to pay any penalty if any demand was confirmed under the normal period.

← Previous Next →