2024 (4) TMI 559 - AT - Service Tax

Reversal of CENVAT Credit - exempted service rendered as trading activity - whether the option exercised by the appellant by intimating to the Department under Rule 6(3A) dated 24.05.2011 and 02.05.2012 is legal and valid? - HELD THAT - It is found that in the various cases, the issue for consideration was whether the demand can be sustained even when the appellant has not complied with the requirement of intimating the Department about availing the option under Rule 6(3A) of the CCR, 2004. In all the decisions, the appellant has reversed the credit attributable to the exempted services and it has been held by the Tribunal consistently that the said requirement is only a procedural requirement and the demand cannot be confirmed for such procedural lapse. Further, in the present case, the appellant is on a better footing because he has exercised the option by submitting intimation letters under Rule 6(3A) dated 24.05.2011 and 02.05.2012, but the Department has not considered the option exercised by the appellant simply on the ground that the option cannot be operative retrospectively from 01.04.2011 and 01.04.2012 respectively. The impugned order is not sustainable - Appeal allowed.

Summary

Issues Involved:
1. Demand of CENVAT Credit under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 73(1) of the Finance Act, 1994.
2. Interest and penalty under Rule 15(1) of the CCR read with Section 76 of the Finance Act, 1994.
3. Validity of the option exercised by the appellant under Rule 6(3A) of the CCR, 2004.

Summary:

1. Demand of CENVAT Credit:
The appellant, engaged in manufacturing concrete equipment, was issued two show cause notices demanding Rs.40,84,669/- and Rs.35,50,651/- for the periods 01.04.2011 to 24.05.2011 and 01.04.2012 to 02.05.2012 respectively, under Rule 14 of the CCR, 2004 read with Section 73(1) of the Finance Act, 1994. The demand was based on the appellant's "trading activity" being considered as an exempted service.

2. Interest and Penalty:
Penalties of Rs.10,00,000/- and Rs.8,00,000/- were imposed under Rule 15(1) of the CCR, 2004 read with Section 76 of the Finance Act, 1994. The main reason for confirming the demand was the non-retrospective applicability of the option exercised by the appellant for proportionate reversal under Rule 6(3A).

3. Validity of the Option Exercised:
The appellant argued that they had reversed the credit attributed to exempted services and that the option under Rule 6(3A) was exercised via letters dated 24.05.2011 and 02.05.2012. The appellant contended that the procedural lapse should not deny them substantial benefits. The Tribunal noted that the appellant had indeed reversed the credit proportionate to the exempted services for the entire periods in question, which was not disputed by the Department.

Tribunal's Findings:
The Tribunal found that the appellant had complied with the conditions prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of the CCR, 2004. The Tribunal referenced the case of "Mercedes Benz India (P) Ltd vs. CCE, Pune-I - 2015 (40) STR 381 (Tri. Mumbai)" among others, which held that procedural lapses should not result in the denial of substantive benefits. The Tribunal concluded that the demand of the entire amount under Rule 6(3)(i) was unsustainable and set aside the impugned order, allowing the appeals with consequential relief.

Conclusion:
The Tribunal allowed the appeals, setting aside the impugned order, and provided consequential relief to the appellant, emphasizing that procedural lapses should not override substantive compliance.