2018 (5) TMI 1194 - AT - Central Excise

CENVAT credit - common input services for exempt services as well as taxable services - It appeared that the activity of trading was an exempted service, whereas, the appellant was availing cenvat credit of service tax paid on input services received by them which was common to both the manufacturing as well as trading activity - Held that - the Department has miserably failed to find out the common input services on which the appellant has taken the CENVAT credit - It is also a fact that the Department on the basis of the first audit conducted on 18/02/2010 issued a SCN for irregular availment of CENVAT credit of service tax paid on service relating to trading activity and thereafter no show-cause notice was issued except impugned SCN whereas the audit was conducted from time-to-time in between - the appellant is not required to follow Rule 6 - appeal allowed - decided in favor of appellant.

Issues:
1. Appeal against rejection of appeal by Commissioner(Appeals) and upholding of Order-in-Original.
2. Irregular availment of CENVAT credit on input services for trading activity.
3. Proper appreciation of facts and evidence by authorities.
4. Invocation of extended period for duty demand.
5. Interpretation of statement by Manager(Finance) regarding CENVAT credit.
6. Failure to identify common input services for CENVAT credit.

Analysis:
1. The appeal was filed against the rejection of appeal by the Commissioner(Appeals) and upholding of the Order-in-Original by the appellant engaged in the manufacture of Customs Built Turnkey Project items. The appellant was availing CENVAT credit on inputs, capital goods, and input services under CENVAT Credit Rules, 2004. The issue arose during an audit where it was observed that the appellant was engaged in trading activity involving E-1 transactions, leading to a show-cause notice demanding duty, interest, and penalty. The appellant argued that the impugned order failed to appreciate facts and evidence, citing a precedent order and lack of identification of common input services for CENVAT credit.

2. The appellant contended that the irregular availment of CENVAT credit on service tax for trading activity was raised for the first time, and subsequent audits did not raise objections after the appellant stopped availing the credit. The appellant argued against the invocation of the extended period for duty demand, stating no intention to evade payment. The appellant also highlighted the absence of identification of common input services for CENVAT credit in the show-cause notice, emphasizing that no suppression or misstatement occurred.

3. The learned counsel for the appellant argued that the impugned order did not sustain in law due to the failure to consider a precedent order and misinterpretation of the Manager(Finance)'s statement regarding CENVAT credit on common input services. The appellate authority found that the lower authorities failed to consider the precedent order, which clarified the absence of CENVAT credit on common input services. The appellate authority also noted the failure to identify common input services for CENVAT credit, leading to the setting aside of the impugned order.

4. The appellate authority found that the Department failed to bring any material showing the appellant availed CENVAT credit on common input services like telephone, internet, and courier services. The Manager(Finance)'s statement was crucial in establishing the appellant's non-availment of CENVAT credit on common input services, which were exclusively used for manufacturing activity. The appellate authority emphasized that the Department's failure to identify common input services meant the appellant was not required to follow Rule 6, ultimately setting aside the impugned order and allowing the appeal.

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