2018 (5) TMI 1189 - AT - Central Excise

Extended period of limitation - CENVAT credit - common input services both for manufacturing of dutiable goods and the traded goods - non-maintenance of separate records - Held that - the judgment of the Hon ble High Court of Madras in the case of Ruchika Global Interlinks 2017 (6) TMI 635 - MADRAS HIGH COURT has held justifying the invocation of extended period of limitation on the ground that the assessee has not disclosed the availment of input service credit in respect of trading activities. The appellant for the period from 01/04/2011 has already reversed the proportionate credit and now the dispute is relating to the period up to 01/04/2011 - further, for the purpose of denying the CENVAT credit, the Revenue has considered the entire value of the turnover and has demanded an amount of ₹ 15,13,218/equal to 8% / 6% / 5% of the value of exempted services as applicable for the relevant period. The Revenue cannot demand CENVAT credit on entire turnover of trading and has to follow the procedure for determining the value of the trading goods for the purpose of Rule 6 of CCR. There is no infirmity in the impugned order which is upheld subject to the quantification of CENVAT credit to be disallowed on the basis of the formula prescribed under Rule 6(3), after that, interest and penalty should be accordingly quantified - Appeal allowed in part.

Summary

Issues:
- Disallowance of input service credit for trading activity
- Invocation of extended period of limitation for raising demand
- Interpretation of Rule 6(3)(i) of CCR for determining CENVAT credit
- Suppression of facts and imposition of penalty

Issue 1: Disallowance of input service credit for trading activity
The appellant, engaged in manufacturing and trading activities, availed input service credit on services commonly used for both activities. The Commissioner(Appeals) disallowed the irregular credit availed during April 2007 to January 2012, amounting to ?15,13,218, under Rule 6(3)(i) of CCR. The appellant argued that trading activity was not considered an exempted service before 01/04/2011, citing relevant judgments. However, the Tribunal upheld the disallowance, stating that trading could not be considered a service or an exempted service before the introduction of the explanation to Rule 2(e) of CCR in 2011.

Issue 2: Invocation of extended period of limitation
The appellant contested the invocation of the extended period of limitation, arguing that there was no suppression of facts and that the Department wrongly applied the larger period. The Tribunal upheld the invocation of the extended period, citing judgments that supported such action when input service credit was used for trading activities without disclosure. The Tribunal emphasized that trading was not considered a service before 01/04/2011 and, therefore, the extended period was justified.

Issue 3: Interpretation of Rule 6(3)(i) of CCR for determining CENVAT credit
The appellant challenged the method used by the Revenue to determine the disallowed CENVAT credit based on the entire turnover of trading. The Tribunal held that the Revenue cannot demand CENVAT credit on the entire turnover of trading without following the procedure for determining the value of trading goods under Rule 6 of CCR. The Tribunal directed the quantification of the disallowed credit based on the prescribed formula under Rule 6(3) and subsequent quantification of interest and penalty.

Issue 4: Suppression of facts and imposition of penalty
The Department argued that the appellant suppressed facts, leading to the invocation of the extended period. The Tribunal agreed with the Department, stating that the appellant's failure to disclose input service credit utilized for trading activities justified the extended period. The Tribunal upheld the penalty under Rule 15(3) of CCR read with Section 11AC of the Act, emphasizing the importance of disclosing all relevant information to avoid such penalties.

In conclusion, the Tribunal partly allowed the appeal, upholding the disallowance of input service credit for trading activity, the invocation of the extended period of limitation, and the imposition of penalty. The Tribunal directed the quantification of the disallowed CENVAT credit based on the correct procedure under Rule 6 of CCR, followed by the appropriate quantification of interest and penalty.