2017 (1) TMI 1234 - AT - Central Excise

CENVAT credit - during the audit, the Department discovered assessee has availed service tax credit on marketing consultancy service on traded goods rendered by M/s. Carl Bechem Lubricants Middle East FZC and as per the reverse charge mechanism under Section 66A of the Finance Act, the assessee has wrongly taken the proportionate CENVAT credit to the extent of service tax attributable to trading activity from Chennai. Further the CENVAT credit has been reversed on being pointed out by the audit party. Held that - as far as confirmation of demand and interest is concerned, I do not find any infirmity in the impugned order. Levy of penalty u/r 15(2) of the CENVAT Credit Rules - Held that - unless and until there is a finding that there was suppression of fact and irregular availment of CENVAT credit, the question of levying penalty under Rule 15(2) of the said Rules does not arise - Moreover, in this case the appellant reversed the duty along with interest on being pointed out by the Department and there was no intention to evade payment of duty as is required under Rule 15 read with Section 11AC - penalty set aside. Appeal disposed off - decided partly in favor of assessee.

Summary

Issues:
- Appeal against Order-in-Original upholding CENVAT credit rejection
- Eligibility of CENVAT credit on service tax for marketing consultancy
- Interpretation of Rule 6 of CENVAT Credit Rules, 2004
- Imposition of penalty under Rule 15 of CCR, 2004

Analysis:

The appeal was filed against the Order-in-Original upholding the rejection of CENVAT credit by the Commissioner (A). The appellant, engaged in manufacturing excisable goods, exported final products and imported goods. The dispute arose when the Revenue objected to the appellant availing service tax credit on marketing consultancy services for traded goods. The Revenue contended that the CENVAT credit for trading imported goods was erroneous and recoverable under Rule 6 of CENVAT Credit Rules, 2004. The appellant argued that the services received were for promoting their manufactured products, not traded goods. The Assistant Commissioner confirmed the demand, imposed a penalty, and the Commissioner (A) upheld the decision.

The appellant contended that the impugned order was unsustainable as it was contrary to the evidence and based on incorrect assumptions. They emphasized that the services from the consultancy were for promoting their manufactured goods, not traded goods. The appellant highlighted the agreement terms with the consultancy firm, which focused on market study, pricing evaluation, legal compliance, and general support. The Revenue's assumption that the services were for both manufactured and traded goods was challenged by the appellant, citing Rule 2(e) of CCR, 2004, which considers trading as an exempted service.

The Revenue argued that the appellant was not entitled to the proportionate CENVAT credit for traded goods as the service tax on marketing consultancy for traded goods did not qualify as an 'input service' under the definition. After considering both parties' submissions, the Tribunal found that the appellant had wrongly taken CENVAT credit on marketing consultancy services for traded goods. The Commissioner (A) was deemed correct in rejecting the appeal regarding the demand and interest. However, the Tribunal held that the penalty under Rule 15 was unjustified as there was no suppression of facts or intention to evade duty. Consequently, the penalty imposed on the appellant was dropped, and the appeal was partially allowed, confirming the order concerning duty and interest but dropping the penalty.

In conclusion, the Tribunal upheld the rejection of CENVAT credit for marketing consultancy services related to traded goods, emphasizing the distinction between manufactured and traded goods. The penalty under Rule 15 was dropped due to the absence of intent to evade duty, resulting in the partial allowance of the appeal while confirming the duty and interest aspects of the impugned order.