2024 (10) TMI 1055 - AT - Central Excise

CENVAT Credit - non-maintenance of separate accounts for the exempted services i.e. trading activity for the period 01.04.2007 to 31.03.2011 - common input services - trading activities covered under exempted service by N/N. 13/2011-CE (NT) dated 31.03.2011 - time limitation - HELD THAT - The demand under Rule 6(3) of Cenvat Credit Rules, 2004 was raised on the ground that there are some common input services on which credit has been availed which are also attributed to the trading activities which have been declared as exempted service under Notification 13/2011-CE (NT) dated 31.03.2011. It is found that firstly, the trading activity became exempted only w.e.f 01.04.2011, the contention of the revenue that it has a retrospective effect is absolutely illegal as per the settled law by the Apex court in the various judgments that wherever, any clarification is against the assessee the same will have prospective effect and cannot have retrospective effect. Secondly, merely by declaring a trading activity as exempted service under a deeming fiction, the same cannot have retrospective effect. Prior to the amendment of Notification No. 13/2011-CE (NT) whereby, the trading activity was made deemed exempted service, there was no clarity even with the department and therefore, the amendment was brought. Firstly, there was a bonafide belief that trading activity will not attract any demand under Rule 6 (3), secondly, in fact, there is absolutely no suppression of fact on the part of the appellant. The entire demand is liable to set aside on the ground of time bar alone - the impugned order is set aside - appeal is allowed.

Summary

Issues:
1. Liability to pay under Rule 6(3) for not maintaining separate accounts for exempted services.
2. Whether the demand for the extended period is time-barred due to the exemption notification.

Analysis:
1. The appellant argued that the demand under Rule 6(3) was based on common input services attributed to both dutiable goods and trading activities. They contended that prior to 01.04.2011, the trading activity was not exempted, so the provision of reversal of Cenvat Credit under Rule 6(3) should not apply for the period in question. The appellant also claimed that the demand was time-barred since the concept of exempted service for trading activities only came into effect from 01.04.2011, while the period under consideration was from 01.04.2007 to 31.03.2011, with the show cause notice issued on 14.02.2014. They argued that no objection was raised during previous audits, indicating no suppression of facts. The appellant cited relevant judgments to support their arguments.

2. The Deputy Commissioner representing the revenue reiterated the findings of the impugned order, which raised the demand under Rule 6(3) based on common input services linked to trading activities declared as exempted under a specific notification. However, the Tribunal found that the trading activity only became exempted from 01.04.2011 and rejected the revenue's claim of retrospective effect. The Tribunal emphasized that a mere deeming fiction declaring trading activity as exempted could not have retrospective effect. They noted that prior to the notification amendment, there was ambiguity even within the department regarding the trading activity's status. The Tribunal observed that there was no suppression of facts by the appellant, and the effect of trading activity being exempted was held to be prospective in various judgments cited. The Tribunal concluded that the demand was time-barred and set aside the impugned order, allowing the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the demand under Rule 6(3) on the grounds of being time-barred and lack of suppression of facts. The judgment highlighted the prospective nature of the exemption notification regarding trading activities and emphasized the importance of bonafide belief and regular audits in determining liability.