2014 (1) TMI 1111 - AT - Central Excise

Denial of cenvat credit Input services used in trading activity Waiver of pre-deposit Whether trading activities were exempted services or not - Held that - The demand raised in the show-cause notice was a demand in terms of Rule 6(1) and not anything under Rule 6(3A) - Trading activities came to be christened as exempted services for purposes of Rule 6(3) as late as in 2011 - The legal fiction was created only for purposes of Rule 6(3) - Prima facie, it has nothing to do with Rule 6(1) - CENVAT credit was taken on input services which were used in trading activities, and utilized it for payment of duty on their excisable products - As trading activities have never been recognized by the statute as taxable services, prima facie, the appellant was not entitled to take CENVAT credit on input services which were used in trading activities during the material period Thus, denial of CENVAT credit cannot be faulted Appellant is directed to deposit Rupees two lakhs as pre-deposit upon such submission rest of the duty to be waived till the disposal Partial stay granted.

Issues:
- Waiver and stay of CENVAT credit denial
- Correct quantification of demand under Rule 6(3A)(b)(ii) of CENVAT Credit Rules 2004
- Denial of CENVAT credit on input services used in trading activities
- Predeposit of balance amount and waiver of penalty

Waiver and stay of CENVAT credit denial:
The appellant sought waiver and stay regarding the denial of CENVAT credit of Rs. 4,76,651 on certain input services used in trading activity during the disputed period. An amount of Rs. 2,74,122 was paid and appropriated, with an additional interest of Rs. 1,29,221 paid and appropriated as well. The appellant argued that the demand was not correctly quantified and should have been calculated using the formula under Rule 6(3A)(b)(ii) of the CENVAT Credit Rules 2004.

Correct quantification of demand under Rule 6(3A)(b)(ii) of CENVAT Credit Rules 2004:
The appellant contended that the demand should have been quantified using the formula prescribed under Rule 6(3A)(b)(ii) of the CENVAT Credit Rules 2004. However, the Tribunal found that the denial of CENVAT credit was justified as the input services were used in trading activities, which were considered exempted services, and hence not eligible for CENVAT credit. The appellant was directed to predeposit the balance amount within a specified timeline.

Denial of CENVAT credit on input services used in trading activities:
The Tribunal noted that the show-cause notice was issued to deny CENVAT credit on input services used in trading activities, which were classified as exempted services. The appellant had utilized the CENVAT credit on input services for payment of duty on their excisable products. As trading activities were not recognized as taxable services by the statute during the material period, the denial of CENVAT credit amounting to Rs. 4,76,651 was deemed appropriate. The appellant was directed to predeposit the remaining balance and report compliance within the given timeframe.

Predeposit of balance amount and waiver of penalty:
The Tribunal directed the appellant to predeposit the balance amount, rounded off to Rs. 2,00,000, within six weeks and report compliance accordingly. The payment of interest was accepted as a predeposit towards the demand of interest on inadmissible CENVAT credit. Additionally, there was a waiver of predeposit and stay of recovery concerning any penalty imposed on the appellant.

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