2018 (7) TMI 595 - AT - Central Excise

CENVAT credit - common input services for manufacturing as well as trading activities - non-maintenance of separate accounts for common inputs - case of appellant is that that prior to 1.4.2011, there was no requirement to maintain separate accounts in respect of common input services that were availed at the depot and that such requirement was only with regard to input services utilized at the factory. Held that - The definition of exempted services was amended by the Explanation with effect from 1.4.2011 whereby trading was deemed to be an exempted service. Consequent amendments were brought forth in Rule 6(2) as well as 6(3A) to lay down procedures when common input services are used for dutiable products / services and trading activities. This amendment was brought forth in Rule 6(2) with effect from 1.4.2011 making it necessary to maintain separate accounts upto place of removal / depot when common input services are used by the appellant. The appellant cannot take refuge of the part of the amendment brought forth in Rule 6(2) and thereafter apply it to the period prior to 1.4.2011. Appellant also claims that there are apparent mistakes in the quantification of demand - matter requires reconsideration. Appeal allowed by way of remand.

Summary

Issues:
1. Eligibility of CENVAT credit on input services used for trading activities.
2. Requirement to maintain separate accounts for common input services.
3. Disallowance of credit and quantification of demand.

Analysis:
1. The appellants, engaged in manufacturing and trading of furniture, availed CENVAT credit on input services used for both manufacturing and trading activities. The department alleged that the appellants failed to maintain separate accounts for common inputs used in manufacturing dutiable products and traded goods, leading to a show cause notice for demand of wrongly availed credit. The original authority and Commissioner (Appeals) upheld the demand. The appellants argued that since the input services were used in the depot where trading activities occurred, they were eligible for credit. However, the Tribunal disagreed, citing amendments in Rule 6(2) and 6(3A) from 1.4.2011, which mandated maintaining separate accounts up to the place of removal or depot when common input services are used for both dutiable products and trading activities. The Tribunal held that the appellant's contention regarding the pre-2011 period was not valid under the CENVAT Credit Rules or the Central Excise Act, 1944.

2. The appellants filed a miscellaneous application pointing out errors in the quantification of demand. The show cause notice and Order-in-Original proposed a demand amount, but the appellants argued that a portion of the credit pertained to input services used exclusively at the factory and should not be denied. The Tribunal acknowledged these contentions and decided to remand the matter to the adjudicating authority for reevaluation. While upholding the demand for wrongly availed credit on trading activities in principle, the Tribunal directed a reexamination of the submissions made by the appellants to rework the net tax liability accordingly. The appellants were granted an opportunity to present their case and provide additional evidence, if necessary. The impugned order was set aside, and the appeal was partly allowed by way of remand for further review and consideration.

3. In conclusion, the Tribunal clarified the requirements for maintaining separate accounts for common input services used in manufacturing and trading activities, emphasizing the need for compliance with the amended rules from 1.4.2011. The decision to remand the matter for reevaluation of the demand and quantification of credit highlighted the importance of accurate assessment and consideration of all relevant factors in determining the tax liability associated with the disputed credit.