2023 (12) TMI 1208 - AT - Central Excise

CENVAT Credit - trading activities/exempt services - Management Consultancy Service - service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted service - absence of ISD registration at the time of availing credit - extended period of limitation. CENVAT Credit - trading activities/exempt services - Management Consultancy Service - service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted service - HELD THAT - As far as admissibility of cenvat credit of trading activity, the Hon ble Madras High Court in Ruchika Global Interlinks 2017 (6) TMI 635 - MADRAS HIGH COURT held Having regard to the rule, position and given the admitted fact that no separate accounts were maintained by the appellant, with regard to the taxable and non-taxable services, clause (c) of sub-rule (3) of Rule 6 of 2004 Rules would apply. Further, the Hon ble Delhi High Court in Lally Automobiles Pvt. Ltd. 2018 (7) TMI 1679 - DELHI HIGH COURT held In the present case, the assessee s argument that there is no mechanism to reverse credit, once taken, in the opinion of this Court, cannot be accepted. The assessee was well aware of the exact nature and extent of its service tax liability. It was also aware of the eligible service tax inputs. Therefore, when it did claim successfully and unchallenged input credits in respect of activities that were not subjected to service tax levy, it was aware that the claim was excessive and could not be justified. Extended period of Limitation - HELD THAT - On the issue of invoking extended period of limitation on similar circumstances, lordships of Delhi High Court held that Being conscious of its trading activity and that it was not liable to service tax (since it did not include the amounts earned from that business, in its returns) meant that the assessee was aware of what it was doing. It cannot now take shelter under the plea that non-trading activity was expressly exempt from claiming credit, in 2011. That amendment made no difference, given that trading was never taxable under the Finance Act, 1994. In these circumstances, the Revenue was justified in invoking the extended period of limitation in this case - Thus, the confirmation of demand with interest by the learned Commissioner invoking extended period of limitation on cenvat credit availed on trading activity is upheld. CENVAT Credit - absence of ISD registration at the time of availing credit - HELD THAT - The issue is also covered by the judgment of the Hon ble Karnataka High Court in the case of Hinduja Global Solutions Ltd, 2022 (4) TMI 71 - KARNATAKA HIGH COURT . Their Lordships following the judgment of Hon ble Gujarat High Court and Madras High Court, held that cenvat credit cannot be denied to the assessee prior to its registration as an ISD, since the same is procedural irregularities - the appellant is entitled to avail cenvat credit of Rs.15,83,168/-. Thus, the impugned order is modified to the extent of confirming inadmissible cenvat credit of Rs.79,22,225/- attributable to trading activity and applicable interest of Rs.15,38,789/- paid on the said credit amount; since the cenvat credit and applicable interest is paid much before the issuance of show-cause notice, the appellant is entitled for the benefit of 25% of penalty imposed under Section 11AC of the Central Excise Act read with Rule 15(4) of CENVAT Credit Rules, 2004 - demand of cenvat credit of Rs.15,83,168/- confirmed with interest and equivalent penalty before ISD registration is hereby set aside. Appeal disposed off.

Summary

Issues Involved:
1. Admissibility of cenvat credit of Rs.79,22,225/- attributable to trading activity.
2. Admissibility of credit of Rs.15,83,168/- pertaining to Ahmedabad and Pune units before obtaining ISD registration at their Bangalore unit.
3. Whether the extended period of limitation can be invoked.

Summary:

1. Admissibility of Cenvat Credit Attributable to Trading Activity:
The primary issue was whether the appellant could avail cenvat credit on 'Management Consultancy Service' related to their trading activities. The appellant argued that under Rule 6(5) of the Cenvat Credit Rules, 2004, they were entitled to avail such credit unless the service was used exclusively for exempted goods or services. They cited several judgments to support their claim. However, the Hon'ble Delhi High Court in the case of Lally Automobiles Pvt. Ltd. held that credit on services used for trading is not admissible and should be apportioned on a pro-rata basis as per Rule 6(3)(c). The court emphasized that trading was not amenable to service tax during the relevant period, thus triggering the apportionment rule. Consequently, the confirmation of demand with interest by the Commissioner invoking the extended period of limitation on cenvat credit availed on trading activity was upheld.

2. Admissibility of Credit Before ISD Registration:
The second issue concerned the denial of cenvat credit of Rs.15,83,168/- availed at the Bangalore unit, which pertained to units at Ahmedabad and Pune, before obtaining ISD registration. The appellant argued that this denial was not sustainable, citing the judgment of the Karnataka High Court in the case of Hinduja Global Solutions Ltd., which held that credit cannot be denied due to procedural irregularities such as the absence of ISD registration. The court agreed, stating that the procedural irregularity should not result in the denial of credit. Thus, the appellant was entitled to avail the cenvat credit of Rs.15,83,168/-.

3. Extended Period of Limitation:
The appellant contended that the demand notice was barred by limitation and that the extended period could not be invoked as the credit was disclosed in their returns, and there was no suppression of facts. The court, however, upheld the invocation of the extended period of limitation, citing the judgment of the Delhi High Court in Lally Automobiles Pvt. Ltd., which found that the appellant was aware of their trading activity and the ineligibility of the claimed credits, thus justifying the extended period.

Conclusion:
The impugned order was modified to confirm the inadmissibility of cenvat credit of Rs.79,22,225/- attributable to trading activity, with applicable interest of Rs.15,38,789/-. Since the credit and interest were paid before the issuance of the show-cause notice, the appellant was entitled to a 25% penalty benefit under Section 11AC of the Central Excise Act read with Rule 15(4) of CENVAT Credit Rules, 2004. The demand of cenvat credit of Rs.15,83,168/- confirmed with interest and equivalent penalty before ISD registration was set aside. The appeal was disposed of accordingly.