2020 (3) TMI 79 - AT - Central Excise

CENVAT credit - input services, which were being utilized by the appellant in respect of manufacturing of their final product as also other trading activities - non-maintenance of separate records - liability to discharge 5%/6% of the value of the such traded goods - extended period of limitation - penalty. HELD THAT - Admittedly the appellant was recording the entire activity in their balance sheet which is a proper document. As such according to the settled law, it cannot be said that the appellant suppressed anything with a mala fide intention - Apart from that, we also agree with the Learned advocate that there was confusion in the field and as per various decisions, trading activity was not considered to be an exempted service prior to April 2011. After 2012, with the introduction of negative list regime, the law was not very clear and in the absence of any specific evidence attributing to the mala fide intent of the appellant, it has to be held that there can be a bona fide belief on the part of the assessee, especially when the entire activities are being reflected in the Books of accounts - As such we hold that the demand for period beyond the normal period of limitation would be barred. The matter to the original adjudicating authority for re-quantification of the demand falling within the period of limitation - As regards the normal period, appellant is entitled to contest the same before the authorities below based upon the dates when the normal period was changed as also on the basis of precedent decision - Further, the appellant s plea of reversal of proportionate credit would also be re-considered by the lower authorities. Penalty - HELD THAT - There was no mala fide on the part of the appellant, the same would not justify imposition of penalty upon them. Appeal allowed by way of remand.

Summary

Issues:
- Dispute regarding Cenvat credit on trading activity
- Applicability of limitation period for demand calculation
- Bona fide belief of the appellant in relation to trading activity
- Consideration of proportionate credit reversal
- Imposition of penalty based on mala fide intent

Analysis:

The judgment by the Appellate Tribunal CESTAT New Delhi involved the resolution of two appeals arising from the same impugned order passed by the Commissioner (A). The appellant was engaged in manufacturing High Chrome Media Balls, Alloys Steel Casting, and trading various bought-out items while availing Cenvat credit of Service Tax on input services. The Revenue contended that since trading was an exempted service, the appellant must discharge a percentage of the value of traded goods. Show cause notices were issued, leading to orders confirming demands, interest, and penalties, which were upheld by the Commissioner (A), prompting the appeals.

The appellant's advocate acknowledged that the issue was decided against them by a recent High Court decision, focusing the argument on the limitation period. It was argued that during the relevant period, the trading activity's treatment was uncertain, with Tribunal decisions indicating exemption only from April 2011 onwards. The appellant believed in good faith that no payment was required for trading activity pre-2011, supported by the reflection of all activities in their books of account, citing precedents to argue against mala fide intent.

Regarding the limitation issue, the Tribunal found that the appellant's recording of activities in their balance sheet precluded any suppression with mala fide intent. Due to confusion in the legal landscape and absence of evidence of mala fide intent, the demand beyond the normal limitation period was deemed barred. The impugned order was set aside for re-quantification within the limitation period, allowing the appellant to contest the normal period based on changes and precedent decisions. The plea for proportionate credit reversal was also to be reconsidered.

The Tribunal concluded that the absence of mala fide intent precluded the imposition of penalties on the appellant, leading to the penalty being entirely set aside. The appeals were disposed of accordingly, emphasizing the absence of mala fide intent as a key factor in the decision-making process.