2017 (4) TMI 743 - AT - Central Excise

CENVAT credit - common input services were used for manufacturing activity as well as trading activity - case of Revenue is that trading activity is to be considered as an exempted service - Held that - amendment brought forth by N/N. 3/2011 incorporating trading activity also as an exempted service in the definition of exempted service, does not have retrospective effect. There is no evidence to establish that appellants are guilty of suppression of facts. Audit was conducted every year as pointed out by Counsel for appellant. The issue whether trading can be considered as exempted service or for that matter service was doubtful prior to 01.04.2011. The issue being interpretational, the appellants cannot be saddled with suppression of facts with intent to evade payment of tax - extended period not invoked. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether common input services used for manufacturing and trading activities are eligible for credit.
2. Applicability of Rule 6 of CENVAT Credit Rules, 2004.
3. Retrospective effect of amendments regarding exempted services.
4. Bar on demand due to limitation period.
5. Interpretation of legal provisions regarding credit availed on common input services.

Analysis:
1. The appeal was against a demand alleging common input services were used for both manufacturing and trading activities. The appellants, engaged in cement manufacturing and trading, utilized services like advertisements, chartered accountants, and telecom services. The demand was raised for availing irregular credit due to trading being considered an exempted service. The original authority and Commissioner upheld the demand, leading to the appeal.

2. The appellant argued that trading was declared an exempted service only from 01.04.2011, making Rule 6 of CENVAT Credit Rules, 2004 inapplicable for the period in question. The counsel cited various decisions to support this claim, emphasizing the contentious nature of trading as an exempted service before the mentioned date. The counsel contended that the credit availed was based on a bona fide belief and should be considered admissible.

3. The tribunal analyzed the issue of reversing credit for common input services used in both manufacturing and trading activities. Referring to the case of Mercedes Benz India Pvt. Ltd., it was held that the amendment incorporating trading as an exempted service did not have retrospective effect. The tribunal cited relevant discussions from the case, highlighting that the amendment was substantive and could not be applied retrospectively. Additionally, in the case of TFL Quinn India Pvt. Ltd., it was noted that the issue of trading as an exempted service was doubtful before 01.04.2011, leading to the demand being set aside due to the limitation period.

4. The tribunal concluded that since the issue of trading as an exempted service was unclear before 01.04.2011, the demand raised invoking the extended limitation period was unjustified. It was emphasized that there was no evidence of suppression of facts by the appellants, as audits were conducted annually. Therefore, the impugned order was set aside, and the appeal was allowed with any consequential reliefs.

5. The judgment highlighted the importance of interpreting legal provisions regarding credit availed on common input services and the retrospective effect of amendments related to exempted services. The decision provided clarity on the eligibility of credit in cases where common input services were used for both manufacturing and trading activities, emphasizing the need for a clear understanding of the legal framework and the timing of relevant amendments.