2018 (3) TMI 324 - AT - Central Excise

CENVAT credit - whether the Appellant is required to reverse the cenvat credit on the common input service attributed to the trading activity for the period prior to 1/4/2011 when the trading activity was considered as exempted service, as per rule 2(E) w.e.f. 1.4.2011? - time limitation. Held that - the Appeal can be disposed of only on limitation since the SCN has invoked the extended period, i.e. beyond one year. As per the fact of the case, the Appellant are carrying out manufacturing activity in respect of dutiable goods and simultaneously, they are also doing trading activity in respect of bought out goods, Prior to 1.4.2011, there was a confusion whether the trading activity can be treated as exempted service to invoked the provision of Rule 6 of Cenvat Credit Rules on the said trading activity. The trading activity was not taxable service, therefore, there was an interpretation that trading being neither service or exempted service, does not cover under Rule-6 of the Cenvat Credit Rules 2004. It is a settled law that when there is an interpretation of law and had general practice amongst the mass, it cannot be said that the assessee has malafide intention to avail undue benefit. It is also on record that the Appellant have been declaring the availment of cenvat credit on common input service in their ST-3 return. The Appellant have recorded in their books of account the manufacturing activity as well as trading activity. In such situation, it cannot be alleged on the Appellant that they have suppressed the facts to evade duty. In absence of any malafide intention and suppression of fact, the extended period of demand cannot be invoked. Hence, the demand is liable to be set aside on the ground of limitation itself. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Whether the Appellant is required to reverse the cenvat credit on the common input service attributed to the trading activity for the period prior to 1/4/2011 when the trading activity was considered as exempted service.

Analysis:
The Appellant argued that Rule 6 of Cenvat Credit Rules applied only when involved in manufacturing both exempted and dutiable goods, not trading. They claimed trading was not a service activity as per the Finance Act, 1994, thus not exempted. Before 1/4/2011, Rule 6 didn't apply, and credit reversal wasn't needed. They believed in the admissibility of cenvat credit for dutiable goods. The legislators amended the definition of exempted service to clarify doubts, indicating uncertainty existed. The Appellant declared cenvat credit in returns and maintained transparent accounts, suggesting no malafide intent or duty evasion.

Analysis:
The Revenue supported the impugned order findings without new arguments.

Analysis:
The judge noted the extended period invoked in the show-cause notice, questioning if the Appellant should reverse cenvat credit for trading activity under Rule 6(3) of Cenvat Credit Rules 2004. The confusion pre-1/4/2011 regarding trading as exempted service led to amendments clarifying trading's inclusion as exempted service. The Appellant's practice wasn't unique, and no malafide intent was proven. The Appellant's transparent record-keeping and compliance indicated no suppression of facts or duty evasion. Due to the lack of malafide intent and suppression, the extended demand period couldn't be enforced. The judge decided in favor of the Appellant based on limitation grounds, rendering the demand void.

Conclusion:
The judge set aside the impugned order and allowed the appeal based on the limitation issue, without addressing the merits.