2016 (6) TMI 230 - AT - Central Excise

Irregularly availing credit on trading activity - how to arrive at the quantum used for trading when no separate accounts are maintained - Held that - The Commissioner(Appeals) has directed the lower authority to recompute the CENVAT credit as trading became exempted service only after 01/04/2011. Prior to 01/04/2011 the only method of computation available was the method in case of exempted services and original authority adopted such method. The computation method taken by the appellant to arrive at the figure ₹ 2,74,122/- is the method for computing in case of trading w.e.f. 01/04/2011. As this is the formula/method provided by legislature for computing value in case of common inputs/input services used for trading activities when there is no separate accounts, the view that application of this method to arrive at the value would be more appropriate though it was introduced w.e.f. 01/04/2011 only. Therefore, direct the jurisdictional Superintendent to compute the value/amount of credit of common input services attributable to trading activity falling within the normal period as per the method provided in Rule 6(3D)(c) of CENVAT Credit Rules as applicable to trading. Thus hold that the appellant is liable to reverse such amount and interest thereon. The original authority has imposed equal amount of penalty. In the present case, as there is no suppression of facts or willful misstatement, the imposition of penalty is totally unjustified. Therefore the appellant is liable to pay the recomputed amount of credit attributable to trading along with interest only. The imposition of penalty is set aside.

Summary

Issues:
1. Whether the appellant is liable to pay an amount equivalent to the CENVAT credit attributable to input services used in trading activity?
2. Whether the demand raised invoking the extended period is sustainable?
3. How should the computation of credit attributable to trading activity be determined when separate accounts are not maintained?
4. Whether the imposition of penalty is justified?

Issue 1: Liability for CENVAT Credit on Trading Activity
The appellant, engaged in manufacturing and trading of leather chemicals, availed CENVAT credit on common input services used for both activities. The department contended that trading is an exempted service, requiring separate accounts under Rule 6 of CENVAT Credit Rules, 2004. The appellant failed to maintain separate accounts and was asked to pay an amount equivalent to the credit attributable to trading activity. The appellant disputed the demand, arguing that trading was not exempted before 01/04/2011, and there was confusion regarding its categorization. The Tribunal held that the demand for the extended period was not sustainable due to lack of evidence of suppression or willful misstatement by the appellant.

Issue 2: Sustainable Demand Invoking Extended Period
The appellant contested the demand raised within the extended period, claiming the department was aware of their trading activity before it was considered exempted. The Tribunal noted that prior to 01/04/2011, trading was not clearly defined as an exempted service. The Tribunal relied on precedents to establish that mere omission or confusion does not constitute suppression of facts. It held that the demand falling within the extended period was not sustainable due to the lack of deliberate evasion by the appellant.

Issue 3: Computation of Credit for Trading Activity
Regarding the computation of credit attributable to trading activity, the appellant argued that the department's method was erroneous and against the law. The appellant highlighted a specific clause introduced in Rule 6(3D) for trading computation post-01/04/2011. The Tribunal agreed that the method provided by the legislature for post-2011 trading computation should be applied retroactively. It directed the re-computation of the credit attributable to trading activity as per the method applicable to trading under Rule 6(3D)(c) for the normal period.

Issue 4: Justification of Penalty Imposition
The original authority imposed a penalty equal to the demand amount, which the Tribunal deemed unjustified due to the absence of suppression or willful misstatement by the appellant. Consequently, the penalty was set aside, and the appellant was directed to pay the recomputed credit amount attributable to trading along with interest only.

In conclusion, the Tribunal disposed of the appeal by holding the appellant liable to reverse the credit for trading activity as per the appropriate computation method, setting aside the penalty imposition, and providing consequential reliefs as necessary.