2015 (10) TMI 1797 - AT - Central Excise

Denial of CENVAT Credit - Trading activity - Held that - appellants have a strong case on limitation. This is because, if the appellants could have been aware of the decision of the Tribunal contradicting the Commissioner s view, we have to hold that the Commissioner (Appeals) also could have been aware of the Tribunal s decision. The very fact that an officer at the level of Commissioner in the department could take a view that credit is admissible, it would be difficult to take a view that such availment of Cenvat credit by the assessee has to be held as wrong availment with intention to evade payment of service tax. In view of above discussions, requirement of pre-deposit is waived treating the amount already deposited as sufficient for the purpose of hearing the appeal and stay against recovery is granted during pendency of the appeal. - Stay granted.

Summary

Issues involved: Eligibility of the appellants for Cenvat credit on common input services specified under Rule 6 (5) of the Cenvat Credit Rules, 2004 when engaged in trading and manufacturing activities, and the time-barred nature of the demand.

Analysis:

1. Eligibility for Cenvat credit: The appellants were under scrutiny for availing Cenvat credit on common input services. The Commissioner (Appeals) in a previous case had held that using input services common for manufacturing final products and trading does not necessitate reversal of Cenvat credit related to trading activity. The Commissioner reasoned that trading activity is not akin to dealing with exempted goods or services. On the other hand, the AR cited a case involving Metro Shoes Pvt. Ltd. where the Tribunal ruled against manufacturers being eligible for input credit linked to trading activities. The Tribunal found the appellants had a strong argument on the limitation issue. Despite the contradiction between the Tribunal and the Commissioner's stance, the Tribunal leaned towards the appellants' position due to the Commissioner's awareness of the Tribunal's decision. Consequently, the requirement for pre-deposit was waived, and the stay against recovery was granted during the appeal process.

2. Time-barred demand: The appellants raised the defense of the demand being time-barred as the show-cause notice was issued after the period in question, which ranged from January 2007 to May 2011. They highlighted their communication with audit officers in 2008 and subsequent reliance on a decision by the Commissioner (Appeals) to support their non-liability for tax payment. The appellants argued that their actions were not indicative of an intention to evade service tax. The Tribunal acknowledged the appellants' argument on limitation, emphasizing that the Commissioner's initial approval of the credit made it challenging to deem the credit availed as wrongful with an intent to evade tax. As a result, the Tribunal deemed the pre-deposit amount as sufficient for the appeal process and granted a stay on recovery during the appeal's pendency.

In conclusion, the judgment primarily revolved around the eligibility of the appellants for Cenvat credit concerning common input services in the context of their trading and manufacturing activities. The Tribunal's decision heavily favored the appellants on the limitation issue, ultimately leading to the waiver of the pre-deposit requirement and the stay on recovery during the appeal proceedings.