2017 (11) TMI 1331 - AT - Central Excise

CENVAT credit - common inputs services that were used/utilized in or in relation to their trading activity - time limitation - Held that - Department was well aware of the trading activity carried on by the appellant which is clear from the letter dated 03.03.2010 which is on record and the audit note dated 12.01.2010 - When all the facts were in the knowledge of the Department then the meaning of suppression and invoking the extended period of limitation is not sustainable in view of the judgment in the case of Commissioner of Central Excise Mumbai Vs. Essel Propack Ltd. 2015 (9) TMI 1084 - SUPREME COURT , where it was held that When all this material was made available to the department and the classification list have been approved and RT-12 returns assessed down the years, it is difficult to find any justification for upholding the allegation of misstatement or suppression of facts. During the relevant period there was no provision with regard to reversal of credit on common input services relating to trading activity. But vide amendment dated 01.03.2011 in Rule 2(e) providing the trading as an exempted service and a formula was incorporated in Rule 6 for reversal of credit - Therefore, the issue relates to interpretation of the said provision where it is applicable prospectively or retrospectively - longer period of limitation invoked by the Department is not legally sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appeal against rejection of appeal by Commissioner (Appeals) regarding irregularly availed credit on common inputs services used in trading activity.
- Sustainability of impugned order in law.
- Applicability of Rule 6 of Cenvat Credit Rules, 2004 to trading activity.
- Retrospective effect of amendment in Rule 2(e) of Cenvat Credit Rules, 2004.
- Barred by limitation and invocation of extended period of limitation.
- Interpretation of law regarding reversal of credit on common input services attributable to trading activity.
- Suppression of facts and intent to evade duty.
- Legality of invoking longer period of limitation.

Analysis:

The appeal before the Appellate Tribunal CESTAT Bangalore was against the rejection of the appellant's appeal by the Commissioner (Appeals) concerning irregularly availed credit on common inputs services used in trading activity. The appellant, a manufacturer of automobile parts, was registered with the Central Excise Department and Service Tax as a service provider. The dispute arose when it was observed during an audit that the appellant had availed cenvat credit on common inputs services used in their trading activity, leading to a show-cause notice for irregularly availed credit, interest, and penalty.

The appellant argued that the impugned order was unsustainable in law, contending that trading activity was not covered under exempted services in the Cenvat Credit Rules, 2004 during the relevant period. They also challenged the retrospective effect of an amendment in Rule 2(e) of the Cenvat Credit Rules, 2004, which included trading as an exempted service. The appellant cited judicial precedents to support their interpretation of the law and limitation on the demand.

The Appellate Tribunal considered the submissions of both parties and analyzed the facts. It noted that the Department was aware of the trading activity conducted by the appellant, as evidenced by correspondence dating back to 2010. The Tribunal found that there was no provision for the reversal of credit on common input services related to trading activity during the relevant period. It also examined the retrospective application of the amendment and the interpretation of the law regarding the reversal of credit.

Ultimately, the Tribunal held that the entire demand was barred by limitation, as the Department had full knowledge of the facts and there was no intent to evade duty. The Tribunal concluded that the invocation of the extended period of limitation was not legally sustainable in this case, setting aside the impugned order and allowing the appeal of the appellant.

In conclusion, the Tribunal's decision focused on the sustainability of the impugned order in law, the applicability of Cenvat Credit Rules to trading activity, the retrospective effect of amendments, the limitation period, interpretation of the law regarding credit reversal, suppression of facts, and the legality of invoking a longer period of limitation. The judgment highlighted the importance of knowledge, interpretation of law, and compliance with provisions in determining the outcome of the appeal.