2017 (10) TMI 271 - AT - Central Excise

Penalty - CENVAT credit - input services common for manufacturing activity and for the trading activity - case of appellant is that the penalty imposed u/r 15 of the CCR, 2004 read with Section 11 AC of the CEA is erroneous as the penalty can be levied only by authority of statutory law and provisions of Section 37 expressively authorise levy of penalty - whether the appellant is eligible to avail the entire CENVAT credit of the common input services which are utilised for manufacturing and trading activity? - Held that - the decision of the Hon ble High Court of Madras in the case of M/s Ruchika Global Interlink 2017 (6) TMI 635 - MADRAS HIGH COURT is directly on the point wherein it was held that Having regard to the rule position and given the admitted fact that no separate accounts were maintained by the appellant, with regard to the taxable and non taxable services, clause (c) of sub rule 3 of rules 6 of 2004 Rules would apply - reversal of credit upheld - penalty upheld - appeal dismissed - decided against appellant.

Summary

Issues:
1. Imposition of penalty for irregular availment of CENVAT credit on common input services utilized for manufacturing and trading activities.
2. Interpretation of Rule 15 of the CENVAT Credit Rules, 2004 and Section 11 AC of the Central Excise Act for penalty imposition.
3. Applicability of penalties under statutory law and extended period for penalty imposition.
4. Impact of the decision of the Hon'ble High Court of Madras in the case of M/s Ruchika Global Interlinks on CENVAT credit availed on common input services.

Analysis:

1. The appellant contested the penalty imposition issue, not disputing duty liability but challenging the penalty for ineligible availment of CENVAT credit on input services used for both manufacturing and trading activities. The appellant argued against the penalties imposed under Rule 15 of the CENVAT Credit Rules, 2004 and Section 11 AC of the Central Excise Act, stating that these provisions were incorrectly applied. The appellant relied on judicial decisions to support the argument that penalties should not have been imposed.

2. The Tribunal considered whether the appellant could avail the entire CENVAT credit on common input services used for both manufacturing and trading activities. The period in question was before 01.04.2011 when the definition of trading activity was not clear. Previous Tribunal decisions allowed assesses to avail full CENVAT credit on inputs and input services for trading activities. However, the situation changed after the Hon'ble High Court of Madras decision in the case of Ruchika Global Interlinks, which impacted the eligibility of CENVAT credit for trading activities.

3. The Tribunal referenced the decision of the Hon'ble High Court of Madras in the case of M/s Ruchika Global Interlinks, which held that the appellant could not avail CENVAT credit on common input services used for trading activities. The Tribunal noted that the appellant had availed such credit and did not contest the audit party's calculation of CENVAT credit attributable to trading activity. The Tribunal upheld the penalties imposed based on the High Court's decision and rejected the appellant's arguments regarding penalty imposition under rules.

4. Following the High Court's decision, the Tribunal concluded that the penalties imposed were legal and correct, aligning with the judicial pronouncement. The Tribunal emphasized the necessity to follow authoritative judicial decisions and upheld the impugned order, rejecting the appeal against penalty imposition for irregular availment of CENVAT credit on common input services used for both manufacturing and trading activities.