2018 (8) TMI 548 - AT - Central Excise

CENVAT Credit - common input services for trading goods as well as for manufactured taxable goods - whether the appellant are entitled for Cenvat credit of common input services used for trading of the goods or not? Held that - The matter is no longer res-integra as it has already been decided in the case of M/s Mercedes Benz India Pvt. Ltd. vs. CCE, Pune I 2014 (4) TMI 12 - CESTAT MUMBAI that the assessee is not entitled to input service Cenvat credit on the exempted goods which also cover trading activity. Amendment to Rule 2 (e) of the Cenvat Credit Rules, 2004 vide Notification No. 3/2011-CE (NT) dated 01/03/2011 has been inserted w.e.f. 01/03/2011 - Held that - The retrospective applicability of the explanation, which has been inserted under Rule 2 (e) of the Cenvat Credit Rules, 2004 becomes applicable retrospectively as same is being considered as an explanation to the already existing provisions. Whether the appellant need to reverse back the Cenvat credit @ 6% of the value of traded goods or the proportionate of Cenvat credit as availed by them towards trading of the goods? - Held that - Tribunal in its various decisions has held that it has never been intention of the legislature to recover from the assessee what is actually attributed to have been used for providing exempted service. In another case of the assessee - reliance placed in the case of M/S. MERCEDES BENZ INDIA (P) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2015 (8) TMI 24 - CESTAT MUMBAI - thus, the appellant is not entitled for taking Cenvat credit on common input services going for trading of goods. Penalty u/s 11AC of Central Excise Act, 1944 - Held that - Since the position of the CENVAT credits attributable towards the trading of goods have already been reversed by the appellant voluntarily before issue of show cause notice, there is no justification in imposing penalty under section 11AC of Central Excise Act, 1944 on the appellant. Matter remanded back for denovo adjudication to the Original Adjudicating Authority to see whether the party s claim of reversal of common input service credit is correct or not and to decide the same

Summary

Issues Involved:
1. Entitlement to Cenvat credit on common input services used for trading goods.
2. Retrospective applicability of the explanation under Rule 2(e) of the Cenvat Credit Rules, 2004.
3. Requirement to reverse Cenvat credit @ 6% of the value of traded goods or proportionate amount.
4. Imposition of penalty under section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Entitlement to Cenvat Credit on Common Input Services Used for Trading Goods:
The appellant is engaged in manufacturing and trading of aluminium products and has been availing Cenvat credit on input services common to both activities. The Tribunal referenced the case of M/s Mercedes Benz India Pvt. Ltd. vs. CCE, Pune – I (2014) and other decisions, establishing that trading is not a service and thus, Cenvat credit on input services used for trading is not permissible. The Tribunal emphasized that the definition of "input service" under Rule 2(l) pertains to services used for manufacturing or providing taxable services, not for trading activities. Therefore, the appellant is not entitled to Cenvat credit on common input services used for trading goods.

2. Retrospective Applicability of the Explanation under Rule 2(e) of the Cenvat Credit Rules, 2004:
The appellant argued that the inclusion of trading in the definition of exempted services under Rule 2(e) should not apply retrospectively. However, the Tribunal cited the case of M/s Essar Steel India Limited vs. CCE & ST, Surat – I (2016), where it was held that the explanation added to Rule 2(e) is clarificatory and has retrospective effect. The Tribunal supported this view, stating that the explanation clarifies the existing provisions and thus, applies retrospectively.

3. Requirement to Reverse Cenvat Credit @ 6% of the Value of Traded Goods or Proportionate Amount:
The Tribunal discussed whether the appellant should reverse 6% of the value of traded goods or only the proportionate Cenvat credit. Referring to the case of Mercedes Benz India (P) Ltd. vs. CCE, Pune – I (2015), it was concluded that the objective of Rule 6 is to ensure that credit is not availed on inputs/services used for exempted goods/services. The Tribunal held that only the proportionate amount of Cenvat credit attributable to exempted services needs to be reversed. The appellant claimed to have reversed ?1,02,345/-, but the Adjudicating Authority did not verify this. Thus, the case was remanded for verification of the proportionate reversal.

4. Imposition of Penalty under Section 11AC of the Central Excise Act, 1944:
The Tribunal noted that the appellant had voluntarily reversed the Cenvat credit attributable to trading activities before the issuance of the show cause notice. Given this voluntary compliance, the Tribunal found no justification for imposing a penalty under section 11AC of the Central Excise Act, 1944.

Conclusion:
The Tribunal upheld the denial of Cenvat credit on common input services used for trading goods. However, it remanded the case to the Original Adjudicating Authority to verify the proportionate reversal of Cenvat credit by the appellant. The Tribunal also ruled against imposing a penalty, considering the appellant's voluntary compliance. The appeal was thus decided accordingly.