2016 (9) TMI 679 - AT - Central Excise

Cenvat credit - reversal of credit availing on transportation of inputs removed as such - acetic acid was their input which was used in manufacture of final product and that input was also sold by them and while clearing said input as such they reversed Cenvat credit as required by Rule 3(5) of Cenvat Credit Rules 2004 and that they did not reverse Cenvat credit of Service Tax paid on inward transportation. Held that - The show cause notice contended that the respondent imported Acetic Acid for their own requirement and for sale. The goods which are procured for own requirement and used in the manufacture satisfy the definition of input in said Cenvat credit Rules. Further when the inputs are cleared as such Cenvat credit to be reversed on such clearance of inputs is provided in said Rule 3(5). However the grounds of appeal stated that the party had deliberately twisted the facts toward Rules 3(5). It is very clear that the grounds of appeal are travelling beyond Show cause notice. Therefore, the grounds of appeal are not sustainable. Therefore, the appeal filed by Revenue is not maintainable - Decided against the revenue.

Summary

Issues:
- Interpretation of Cenvat Credit Rules 2004 regarding availing credit on input services for trading goods
- Reversal of Cenvat credit on input services for goods cleared as such
- Application of Rule 3(5) of Cenvat Credit Rules 2004
- Allegations of deliberate misuse of Cenvat credit and imposition of penalty

Analysis:

1. Interpretation of Cenvat Credit Rules 2004: The case involved a dispute over the interpretation of Cenvat Credit Rules 2004 concerning the availing of credit on input services for trading goods. The appellant argued that the services involved in trading activities were not admissible under the rules. They cited the case of Orion Appliances Ltd. v. Commissioner of Service Tax to support their stance that credit for input services used in trading activities is not permissible.

2. Reversal of Cenvat Credit on Input Services: The issue of reversing Cenvat credit on input services for goods cleared as such was central to the case. The appellant contended that the respondent had deliberately availed credit on input services for goods procured for trading purposes. They highlighted instances where the respondent allegedly twisted facts to avoid reversing the credit, especially for goods cleared before a specific date when the rules were amended.

3. Application of Rule 3(5) of Cenvat Credit Rules 2004: The controversy revolved around the application of Rule 3(5) of the Cenvat Credit Rules 2004. The respondent argued that the goods procured were used for both manufacturing and trading purposes, and thus, the reversal of credit availed on such inputs was only required at the time of clearance. The Commissioner (Appeals) supported this argument by referencing a ruling by the Hon'ble High Court of Punjab and Haryana.

4. Allegations of Deliberate Misuse and Penalty Imposition: The appellant alleged that the respondent deliberately misused Cenvat credit on input services for trading goods, leading to the imposition of penalties under Rule 15 of the Cenvat Credit Rules 2004. They cited the case of Union of India v. Rajasthan Spinning & Weaving Mills to support their claim that penalties should apply in cases of deliberate deception to evade duty.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue as the grounds presented went beyond the scope of the show cause notice. The Tribunal found that the appellant's arguments were not sustainable, leading to the dismissal of the appeal and providing consequential relief to the respondent. The judgment highlighted the importance of adhering to the specific provisions of the Cenvat Credit Rules and avoiding deliberate misuse of credit provisions.