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2021 (11) TMI 899 - AT - Service TaxCENVAT Credit - input services common to both taxable as well as exempt services - Rule 6(3A) of CCR,2004 - adjudicating authority dropped the demand for the period prior 1.4.2011 on the ground that trading is classified as an exempted service only from 1.4.2011 - whether the turnover of a particular unit should be taken into consideration for arriving at the amount of tax credit to be reversed in terms of Rule 6(3A) of CENVAT Credit Rules, 2004? - HELD THAT - For the period 01.04.2011, the issue stands decided in the case of MERCEDES BENZ INDIA PVT LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-1 2014 (4) TMI 12 - CESTAT MUMBAI wherein it was held that trading is not an exempted service prior to 01.04.2011; provisions of Rule 6 requiring reversal of 6% of trading turnover is not applicable. We also find that the matter prescribed under Rule 6 of CCR, 2004, can be applied for the period before 01.04.2011 also as held by the Tribunal in the case of M/S TFL QUINN INDIA PVT. LTD. VERSUS CC CE, HYDERABAD-IV 2016 (6) TMI 230 - CESTAT HYDERABAD . It is not coming forth from the records of the case as to whether the Department has appealed against such order and if so, the outcome of the same. While holding that the Department is not precluded from issuing SCN to the head office of the Respondents as res judicata would not apply to taxation matters, it is found that there is a dichotomy in the approach of the appellant department. The benefit of doubt should go the appellants. Coming to the period subsequent to 01.04.2011 when trading came to be considered as an exempted service, we find that the appellants have reversed credit, of ₹ 27,37,30,026/- for the period 2011-12 to 2014-15, in terms of Rule 6(3A) of CCR, 2004, on proportionate basis - Hon ble Karnataka High Court has dealt with the very same issue in the case of THE COMMISSIONER OF CENTRAL EXCISE BANGALORE - IV (ERSTWHILE BANGALORE - II) COMMISSIONERATE VERSUS M/S. ITC LIMITED 2021 (5) TMI 366 - KARNATAKA HIGH COURT and the Hon ble High Court has held relying on the Division Bench decision in the case of COMMISSIONER OF C. EX., BANGALORE-I VERSUS ECOF INDUSTRIES PVT. LTD. 2011 (2) TMI 1130 - KARNATAKA HIGH COURT held that there are only two limitations imposed under Rule 7 of the Rules, for distribution of credit by an Input Service Distributor. The learned Commissioner s order is legal and proper and as such does not require any interference - appeal dismissed.
Issues Involved:
1. Applicability of Cenvat Credit on trading activities prior to 01.04.2011. 2. Inclusion of turnover of Puducherry manufacturing unit for credit reversal calculation post 01.04.2011. 3. Validity of extended period of limitation for raising demand. 4. Imposition of interest and penalty on the respondent. Issue-wise Detailed Analysis: 1. Applicability of Cenvat Credit on trading activities prior to 01.04.2011: The appellant department contended that even though trading was not an exempted service before 01.04.2011, it was also not a taxable service, thus Cenvat Credit should not be allowed. They argued for a proportionate reversal of ?3,17,17,271 instead of ?67,04,088 voluntarily reversed by the respondent. The respondent cited the CESTAT decision in Mercedes Benz India Pvt Ltd, which held that trading is not an exempted service before 01.04.2011, and thus the provisions of Rule 6 requiring reversal of 6% of trading turnover are not applicable. The tribunal agreed with the respondent, stating that the method prescribed under Rule 6 of CCR, 2004, can be applied for the period before 01.04.2011. 2. Inclusion of turnover of Puducherry manufacturing unit for credit reversal calculation post 01.04.2011: The department argued that the turnover of the Puducherry unit, which has separate Central Excise and Service Tax registration, should not be included in the total turnover for credit reversal under Rule 6(3A)(c)(ii). The respondent, however, maintained that as an Input Service Distributor (ISD), they are required to distribute credit as per Rule 7 of the CCR, 2004, which necessitates including the turnover of all units. The tribunal found that the inclusion of the Puducherry unit's turnover was appropriate, as the centralized service tax registration at Bangalore applies to the entire entity, including the Puducherry unit. 3. Validity of extended period of limitation for raising demand: The respondent argued that the extended period of limitation is not applicable as there was no fraud, collusion, or suppression of facts. They had disclosed the reversal of proportionate credit in their returns regularly, and the issue was a matter of legal interpretation. The tribunal agreed, noting that the department's appeal did not challenge the order on the ground of limitation, and thus the extended period of limitation could not be invoked. 4. Imposition of interest and penalty on the respondent: The respondent contended that interest is not payable as they had reversed the proportionate credit voluntarily and had a credit balance in their accounts. They also argued against the imposition of penalties, claiming that they had not contravened any provisions and had acted under a bona fide belief. The tribunal found that the respondent had not suppressed any information and had provided all necessary details to the department. Therefore, the imposition of interest and penalties was not warranted. Conclusion: The tribunal upheld the adjudicating authority's decision, finding that the inclusion of the Puducherry unit's turnover for credit reversal calculation was appropriate and that the respondent had correctly reversed the proportionate credit. The department's appeal was dismissed, and the tribunal concluded that the order was legal and proper, not requiring any interference. The appeal was dismissed, and the order was pronounced in the Open Court on 23/11/2021.
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