2022 (7) TMI 719 - HC - Service Tax

CENVAT Credit - common inputs used of providing both taxable and exempted service - failure to maintain separate account as required under Rule 6(2) of the Cenvat Credit Rules - failure to exercise option as stipulated under Rule 6(3) of the Cenvat Credit Rules, 2004 - requirement of proportionate Cenvat Credit in respect of trading activity which is exempted in terms of Rule 2(e) of the Cenvat Credit Rules, 2004 - invocation of extended period of limitation - HELD THAT - There is no specific allegation against the assessee of any deliberate suppression or misstatement with an intent to evade taxes - on examination of the allegations in the show cause notice, it is found that there is no specific allegation or prima facie finding of any wilful misstatement or suppression on the part of the assessee. That apart, the details have been culled out by the adjudicating authority from the available records and there is no new or fresh tangible materials available in the hands of the adjudicating authority to make out a case of wilful misstatement or wilful suppression. Therefore, the tribunal was fully justified in holding that the extended period of limitation could not have been invoked. What is important to note is that the amount of legible Cenvat credit to the assessee was Rs.41,17,269/- whereas the demand which was impugned before the tribunal fastened a liability of Rs.3,29,07,268/- which is not legally sustainable. The substantial questions of law are answered against the revenue - Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether the Tribunal was justified in setting aside the demand of duty when the assessee did not maintain separate accounts as required under Rule 6(2) of the Cenvat Credit Rules and failed to exercise the option under Rule 6(3)?
2. Whether the respondent was obligated to reverse proportionate Cenvat Credit for trading activity exempted under Rule 2(e) of the Cenvat Credit Rules, 2004?

Analysis:

Issue 1:
The appellant challenged the Tribunal's decision to set aside the duty demand due to the assessee's failure to maintain separate accounts as mandated by Rule 6(2) of the Cenvat Credit Rules. The assessing officer alleged that the assessee availed Cenvat Credit without maintaining separate accounts, leading to a demand for payment. However, the tribunal found that the extended period of limitation could not be invoked as there was no evidence of deliberate suppression or misstatement by the assessee. Citing legal precedents, the tribunal held that mere non-payment of duties does not imply collusion or wilful misstatement. Consequently, the tribunal ruled in favor of the assessee on this issue.

Issue 2:
Regarding the obligation to reverse Cenvat Credit for exempted trading activity, the tribunal found that the assessing authority mechanically applied the 6% rule without justifying the calculation method. Referring to a previous case, the tribunal emphasized that the authority cannot choose options on behalf of the service provider under Rule 6(3) of the Rules. It was noted that a new rule introduced post the relevant period was not invoked by the adjudicating authority. The tribunal concluded that the demand imposed on the assessee was not legally sustainable, as it far exceeded the actual Cenvat Credit amount. Consequently, the tribunal upheld the assessee's appeal, dismissing the revenue's appeal and answering the substantial questions of law against the revenue.

In conclusion, the High Court of Calcutta, comprising Justice T.S. Sivagnanam and Justice Bivas Pattanayak, upheld the Tribunal's decision, ruling in favor of the assessee on both issues raised in the appeal. The Court found that the revenue's demands were not legally justified, leading to the dismissal of the revenue's appeal and closure of the connected application for stay.