2019 (2) TMI 7 - AT - Central Excise

Refund of CENVAT Credit - High Sea Sale - trading activity - credit was reversed to buy peace - common input/input services used in manufacturing as well as trading activity - non-maintenance of separate records - Held that - It is the sale of goods which happens by way of transfer of document of title after the goods cross the Customs Barriers of the foreign nation but before they cross (enter) the Customs frontiers of India. Hence, when High Sea Sales take place outside the territorial waters, it cannot be understood how such sales can be considered as an exempted service (trading) so as to fall within the ambit of Rule 2(e) of the CENVAT Credit Rules, 2004 - There is no evidence to show that common input services have been used for such High Sea Sales. Further, possibly to buy peace with the Department, the appellant had reversed the CENVAT Credit voluntarily and is now contesting only the rejection of refund claim. Refund was rejected mainly on the grounds that the appellant did not exercise the option of reversing the proportionate Credit and that another SCN has already been issued to the appellant demanding the recovery of Credit as quantified under Rule 6(3)(i) of the CCR, 2004 for the very same disputed periods - Held that - The appellant, as per the provision, reversed an excess amount of ₹ 8,38,752/-. This being so, the Department cannot reject the refund claim stating that they have not exercised any option. The conduct of reversing proportionate Credit is sufficient to show the intention of the appellant to exercise the option provided under Rule 6(3) ibid. Another ground for rejection is that a further Show Cause Notice dated 24.02.2016 has been issued to the appellant - Held that - Merely because a Show Cause Notice has been issued or is pending adjudication, it cannot be said that any other appeal proceedings has to be kept in abeyance by the Commissioner (Appeals) or this Tribunal. This contention of the Department for rejecting the refund claim is without any legal basis. The impugned Order rejecting the refund claim cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
Rejection of refund claim due to High Sea Sale transactions being considered as trading activity under exempted service, failure to exercise option under Rule 6(3A) of CCR, 2004, and pending Show Cause Notice demanding recovery of Credit.

Analysis:
The appellant, engaged in manufacturing and High Sea Sale transactions, faced a refund claim rejection of ?8,38,752. The Department viewed High Sea Sales as trading activities under exempted services, necessitating adherence to Rule 6 of CCR, 2004 due to lack of separate accounts. The appellant voluntarily reversed ?8,38,752, later realizing an excess reversal. The Original Authority and Commissioner (Appeals) rejected the refund claim, prompting this appeal.

The appellant argued that High Sea Sales were distinct from manufacturing, with no common input services. They erred in calculating the reversal amount under Rule 6(3A)(c), reversing excess Credit. The Department contended that without exercising the Rule 6(3A) option, the appellant should pay 6% of traded goods' value. A pending Show Cause Notice further complicated matters.

The Tribunal questioned the classification of High Sea Sales as exempted trading activities under Rule 2(e) of CCR, 2004. The audit's objection lacked evidence of common input services for High Sea Sales. The appellant's voluntary Credit reversal aimed to avoid disputes, focusing solely on the refund claim rejection.

Refund denial was based on the appellant's failure to exercise the option and the pending Show Cause Notice. The appellant's reversal error indicated an excess of ?8,38,752, justifying the refund claim. Precedents supported pro rata Credit reversal. The pending Show Cause Notice did not justify refund rejection.

The Tribunal overturned the refund rejection, emphasizing the flawed grounds for denial. The appeal succeeded, granting consequential reliefs as per law. The judgment was pronounced on 28.01.2019.