2017 (11) TMI 1449 - AT - Central Excise

CENVAT credit - Trading activities - Rule 3 and Rule 9(6) of Cenvat Credit Rules, 2004 - Held that - legal fiction given in the Explanation in order to remove doubts was introduced on 1.4.2011. Even if it is considered that trading is not an exempted service, it is also a fact that it cannot be considered as a service within the scope of Finance Act, 1994 during the material time. Even in such situation, the appellants cannot take credit on input services, which are utilised for trading activity. As trading is neither a service nor an exempted service during the material time, the appellants are not covered by the Cenvat Credit Scheme with reference to such activity. Extended period of limitation - Held that - The input services, on which credit was availed by the appellant, were consumed for trading activities and such credit could not have been availed or taken for discharging service tax on the services provided by the assessee - there is no scope for any interpretational misconceptional on this aspect - extended period rightly invoked. Appeal dismissed - decided against appellant.

Summary

Issues:
Violation of Rule 3 and Rule 9(6) of Cenvat Credit Rules, 2004 by availing cenvat credit on input services for trading activities.

Analysis:
The appeal challenged an order by the Commissioner of Central Excise against the appellants, manufacturers of Optical Fibre & Optical Fibre Cable, engaged in trading activities and availing cenvat credit on input services like security, banking, and auditing. The Original Authority confirmed a demand of ?51,66,116/- along with a penalty of ?10,000/- under Rule 15(3) of the CCR 2004 for violating Rule 3 and Rule 9(6) of Cenvat Credit Rules, 2004 by availing and utilizing cenvat credit on input services not related to manufacturing activities.

The appellants contended that Rule 6 of CCR 2004 did not apply as trading was not an exempted service before 01.04.2011, and there was no need for separate accounts. They argued that the show cause notice was time-barred as no facts were suppressed. The interpretation of the Cenvat Credit Rules was crucial, and they cited various cases to support their position.

The Revenue argued that trading activities did not qualify for cenvat credit as per CCR 2004, and the amendment in Notification No.3/2011 clarified this position. They supported the demand for the extended period, stating that no bonafide belief could justify availing credit for trading activities under the Cenvat Credit Rules.

The Tribunal noted that the appellants availed credit on input services without demonstrating their usage in taxable and non-taxable activities. Despite the legal fiction introduced in 2011, trading was not considered a taxable or exempted service during the relevant period. The burden of proof for admissibility of cenvat credit lay with the manufacturer or service provider, as per Rule 9(6) of CCR 2004.

The Tribunal held that the appellants could not claim cenvat credit for services used in trading activities, which were not covered under the Cenvat Credit Scheme. The extended period for demand was justified, as the legal position was clear regarding the inadmissibility of credit for trading activities before the 2011 amendment. Citing precedent, the Tribunal dismissed the appeal on 16.10.2017, upholding the demand and penalty imposed by the Original Authority.