2017 (8) TMI 469 - HC - Central Excise

Reversal of CENVAT credit - non-maintenance of separate records for taxable and exempt activity - trading activity - effect of amendment, retrospective or prospective? - Held that - The provision for payment of the aforesaid amount in view of not maintaining separate books of accounts was enforced vide Notification No.13 of 2011 dated 31st Mrach, 2011 w.e.f. 1st April, 2011 as is evident on the plain reading of the said notification. The subsequent Notification dated 20th June, 2012 enforced w.e.f. 1st July, 2012 is only a repetition of the above amended Rule 6 in a different form and therefore the provision for payment of 6% of the value of the goods on the difference of sale and purchase price of the goods traded or 10% of the cost of the goods sold, whichever is more, remained in existence w.e.f. 1st April, 2011 - the Adjudicating Authority or the Commissioner (Appeals) were not right in holding that the said provision had come into effect from 1st July, 2012 and thus, disallowing the benefit thereunder to the respondent - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Availing CENVAT Credit on common input services.
2. Requirement to maintain separate books of accounts for manufacturing and trading activities.
3. Applicability of Rule 6 of the CENVAT Credit Rules, 2004.
4. Disallowance of CENVAT Credit and recovery of amount.
5. Interpretation of notifications regarding payment of 6% of the value of goods.

Analysis:
1. The respondent availed CENVAT Credit on common input services for a specific period. The issue arose as the trading activity was exempted from service tax, necessitating the maintenance of separate books of accounts for manufacturing and trading activities concerning common input services.

2. The requirement to maintain separate books of accounts was crucial as failure to do so would result in a liability to pay a specified percentage on the value of goods traded. The notifications specified the consequences of not maintaining separate accounts and the subsequent amendments enhanced the penalty amount.

3. The case revolved around the interpretation and application of Rule 6 of the CENVAT Credit Rules, 2004, as amended by relevant notifications. The rule mandated payment of a percentage of the value of goods or cost of goods sold if separate accounts were not maintained, with specific rates mentioned in the notifications.

4. The respondent was served with a show cause notice for disallowance and recovery of CENVAT Credit availed. Despite agreeing to reverse a proportionate amount, the Adjudicating Authority confirmed the demand. The Tribunal later allowed the reversal of a specific amount based on the trading turnover.

5. The Tribunal's decision was based on the understanding that the provision for payment of the specified amount came into effect from a particular date, and the respondent was entitled to the benefit accordingly. The Tribunal's acceptance of the calculation and the setting aside of the penalty order were deemed appropriate based on the compliance with Rule 6 of the Rules.

In conclusion, the High Court upheld the Tribunal's decision, finding no error or illegality. The appeal was dismissed, affirming the Tribunal's ruling on the calculation and penalty order. The judgment emphasized the importance of complying with the CENVAT Credit Rules and maintaining accurate accounts to avoid penalties.