2018 (8) TMI 1502 - AT - Central Excise

CENVAT credit - it was alleged that respondents had engaged himself in a trading activity which is an exempted service - Rule 6 of CCR - Held that - The 1st appellate authority was correct in coming to a conclusion that when statutory provisions have been framed, the assessee who procures inputs on payment of duty for consumption cleared the same as such on payment of duty, cannot be considered as trading activity. In the case in hand, there is no dispute as to the fact that the respondent had procured manganese ore for the purpose of consumption and manufacturing activity in the premises. In the case in hand it is not the allegation of the Revenue that respondents have procured manganese ore for stocking and subsequent resale - there is not a single line of finding by the original adjudicating authority as to whether clearances of manganese ore as such amounted to trading activity or rendering of any services. If the clearances of inputs as such is allowed under the provisions of Rule 3 of the CENVAT Credit Rules subject to the condition mentioned therein, the clearances effected by the respondent of the excess raw materials procured cannot be termed as trading activity. Appeal dismissed - decided against Revenue.

Summary

Issues:
Revenue's appeal against order-in-appeal dated 31.10.2017 - Allegation of engaging in exempted trading activity - Availing CENVAT credit on inputs - Imposition of penalties - Adjudicating authority's confirmation of demands - 1st Appellate Authority setting aside the order-in-original - Interpretation of trading activity under CENVAT Credit rules.

Analysis:
The appeal involved a dispute regarding the respondent's alleged engagement in a trading activity during the period 2011-12 to 2013-14, leading to the imposition of demands, interest, and penalties. The respondent, a manufacturer of high carbon ferro chrome & silico manganese, contested the show-cause notice, denying involvement in trading activities and justifying the income from the sale of raw materials. The adjudicating authority confirmed the demands and penalties, which were subsequently set aside by the 1st Appellate Authority.

The Revenue contended that the respondent's clearances of excess raw materials constituted a trading activity, necessitating payment of 5%/6% of the value of such activity. Reference was made to a Tribunal case highlighting restrictions on availing CENVAT credit for trading goods. The 1st Appellate Authority was criticized for not recognizing the trading nature of the respondent's actions as per Rule 6 of the CENVAT Credit rules.

In response, the respondent's consultant argued that the sale of excess raw materials did not qualify as trading activity, emphasizing the abnormal circumstances leading to such sales. The respondent's consumption of imported manganese ore for manufacturing, along with profit accrual from sales, was presented as evidence against the trading activity classification.

Upon review, the Tribunal found that the respondent's actions did not align with the definition of trading activity. The 1st Appellate Authority's decision to uphold the respondent's position was supported by the Tribunal, emphasizing the correct application of CENVAT Credit Rules and the lack of evidence suggesting traditional trading practices like stocking and reselling.

The Tribunal concluded that the impugned order was legally sound, devoid of any flaws, and upheld the decision of the 1st Appellate Authority. The appeal was rejected, affirming the respondent's position regarding the nature of their activities and the inapplicability of trading activity classification to their operations.