2021 (7) TMI 811 - AT - Central Excise

CENVAT Credit - common input services on trading activity / traded goods - non-maintenance of separate accounts under Rule 6(2) of Cenvat Credit Rules - non-filing of declaration as contemplated in Rule 6 (3A) - suppression of facts or not - extended period of limitation - HELD THAT - The Tribunal in the case of Dalmia Bharat Sugar Industries Ltd. vs. CCE 2017 (10) TMI 1027 - CESTAT NEW DELHI has followed the decision in the case of Mercedes Benz India Pvt Ltd 2015 (8) TMI 24 - CESTAT MUMBAI wherein it was observed that the Commissioner is not justified in insisting that appellant reverse cenvat credit in terms of Rule 6(3)(i) of Cenvat Credit Rules. The claim of the appellant is that they have already reversed on proportionate basis the cenvat credit along with interest amount payable in terms of Rule 6(3A). However the Department is entitled to verify whether reversal of the amount already made by the appellant satisfies the requirement of Rule 6(3)(ii) notwithstanding the fact that the procedural formalities have not been satisfied. Time Limitation - suppression of facts or not - HELD THAT - The appellants have been issued show cause notices for earlier periods on identical issue. The appellants have disclosed the credit availed in the returns filed by them. They had submitted all the documents called for by the department and I do not find any evidence to saddle the appellants with willful suppression of facts with intention to evade payment of duty - the appellants had been reversing the credit availed on common input services and informed the department whenever the details were asked for. Thus the department was fully aware that the appellants were conducting trading activity - the demand raised invoking the extended period is without any factual or legal basis. The appeal succeeds on limitation also. The impugned order is set aside both on merits as well as on limitation - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Eligibility of Cenvat credit on common input services used in trading activities.
2. Compliance with Rule 6(3A) of Cenvat Credit Rules.
3. Grounds of limitation for recovery of credit.

Analysis:

Issue 1: Eligibility of Cenvat credit on common input services used in trading activities:
The case involved M/s. Castrol India Ltd. engaging in manufacturing lubricating oils and trading activities. The dispute arose regarding the eligibility of Cenvat credit on common input services used for trading activities. The department contended that since trading was an exempted service, the appellant was not entitled to credit on such services. The appellant voluntarily reversed the credit attributable to trading activities but was challenged for not following the procedure under Rule 6(3)/6(3A) of the Cenvat Credit Rules. The Tribunal held that the requirement to file a declaration under Rule 6(3A) was procedural, and the appellant's reversal of credit satisfied the rule's requirements. Citing precedents, the Tribunal ruled in favor of the appellant, setting aside the demand for credit reversal related to trading activities.

Issue 2: Compliance with Rule 6(3A) of Cenvat Credit Rules:
The appellant argued that the requirement to file a declaration under Rule 6(3A) was procedural and not a substantive condition for credit reversal. The department insisted on compliance with Rule 6(3)(b)(i) due to the appellant's failure to file the declaration. However, the Tribunal, following precedents, held that the appellant's voluntary reversal of credit fulfilled the rule's intent, and the department's demand for further credit reversal was unjustified. The Tribunal remanded the matter for verification by the original authority but ultimately set aside the demand, concluding that the appellant had already complied with the credit reversal requirement under Rule 6(3A).

Issue 3: Grounds of limitation for recovery of credit:
Regarding the grounds of limitation, the appellant contended that the department was aware of the credit availed on common input services for trading activities as evidenced by earlier show cause notices and disclosures in returns. The appellant had been reversing the credit based on the jurisdictional Commissioner's order and had cooperated with the department's requests for information. The Tribunal found no evidence of willful suppression of facts by the appellant and concluded that the demand invoking the extended period lacked factual or legal basis. Consequently, the Tribunal set aside the demand on limitation grounds as well.

In conclusion, the Tribunal allowed the appeal on both merit and limitation, setting aside the impugned order and providing consequential relief to the appellant.