2019 (2) TMI 437 - AT - Central Excise

CENVAT Credit - trading of goods - exempt activity - non-maintenance of separate records for dutiable as well as exempt goods - Rule 6(3) of CCR, 2004 - Held that - A pure sale, unassociated with delivery of goods and services together, is not to be considered as service. Therefore what is contained in Section 66D of the Finance Act, 1994 dealing with negative list of services concerning trading of goods as well as inclusion of the same in the explanation appended to clause 2(e) of the Cenvat Credit Rules 2004 are mere clarificatory in nature, as definition of service as contained in 65B(44) and exempted service in 66D are to be read conjointly and not in exclusion of each other. This being the statutory definition, sale of goods; be it made in the high sea or within the territorial boundary of India in which Finance Act, 1994 has its force, cannot be called a service to impose tax liability or deny the credit under Rule 6 of Cenvat Credit Rules. Extended period of limitation - penalty - Held that - The respondent has not brought-forth any cogent evidence on record to establish the charge of wilful suppression by the appellant company. The order imposing penalty and invoking extended period for issuing SCN is held to have no legal basis. Appeal allowed in part.

Summary

Issues:
1. Whether the Appellants are liable to pay an amount equal to 5% of the value of exempted services for not maintaining separate accounts.
2. Whether the Appellants are entitled to reverse the Cenvat Credit under Rule 6(3A) of the Cenvat Credit Rules, 2004.
3. Whether the penalty imposed on the Appellants is justified.

Issue 1:
The Appellants, engaged in manufacturing and trading, were found to have not maintained separate accounts for dutiable and exempted goods during an audit. Consequently, a Show Cause Notice was issued for recovery under Rule 6(3) of CCR, 2004. The Order-In-Original confirmed the duty demand, interest, and penalty. The Appellants appealed, arguing they had availed only a portion of service tax credit on common inputs for trading goods. The Tribunal observed that the sale of goods alone, without associated services, does not constitute a service for tax purposes. Citing legal precedents, the Tribunal held that the penalty imposition lacked legal basis as the duty was paid with interest, and no wilful suppression was proven. The penalty was set aside, and the matter was remanded for determining reversible Cenvat credit.

Issue 2:
The Appellants contended they were entitled to reverse Cenvat Credit under Rule 6(3A) of the Cenvat Credit Rules, 2004. The Commissioner remanded the case to ascertain the quantum of reversible credit based on documentary evidence. The Tribunal acknowledged the Appellants' partial availing of service tax credit on common inputs for trading goods. It further clarified that the definition of service excludes pure sales of goods, aligning with statutory provisions and judicial interpretations. The Tribunal upheld the remand for determining reversible credit, finding it non-prejudicial to either party's interests.

Issue 3:
Regarding the penalty imposed on the Appellants, the Tribunal found that the duty amount was paid by the Appellants with interest, rendering the penalty imposition unwarranted. Citing Section 80(2) of the Finance Act, 1994, which mandates no penalty when duty is paid with interest, the Tribunal set aside the penalty. Additionally, no evidence of wilful suppression was presented by the Department. The Tribunal concluded that the penalty imposition lacked legal basis and overturned it. However, the remand for ascertaining reversible Cenvat credit was upheld, resulting in a partial allowance of the appeal.

This detailed analysis of the judgment covers the issues involved comprehensively, outlining the arguments presented, legal interpretations applied, and the Tribunal's conclusions on each issue.