2018 (8) TMI 1448 - AT - Central Excise

CENVAT Credit - appellant during the period under dispute had undertaken E-1 sales; had supplied goods from manufacturing premises directly to the customer s site - Trading activity or not? - Rule 6(3)(i) of Cenvat Credit Rules 2004 - whether the trading activity undertook by the appellant for the period July 2010 to March 2015 is an exempted service? Held that - Rule 6 casted an obligation on the manufacturer or purchaser to reverse such of the cenvat credit if the input on which the cenvat credit availed is used in or in relation to the manufacture of exempted goods and its clearance upto the place of removal or for provision of exempted services which was introduced w.e.f. 01.04.2011. This being prospective in nature, the amended provision cannot be held to be applicable for the first period, i.e., July 2010 to March 2011 - demand set aside. For the second period i.e. April 2011 to June 2012, the definition of exempted service was amended by including trading activity, but however, in terms of Rule 6, the value of non-excisable goods shall be the invoice/agreement/contract value and where such value is not available, the same to be determined by using reasonable means consistent with the principles of valuation. In the third period i.e. July 2012 to March 2015, the appellant has submitted that it had followed Rule 6(3A) and reversed an amount of ₹ 5,72,476/-, which again has neither been countered nor disbelieved by the adjudicating authority - for the third period the situation prevailing during first period applies and therefore, as there was no mechanism in the statute to evaluate an exempted service, there is no question of any liability or obligation. Appeal allowed in part.

Summary

Issues:
1. Whether the trading activity undertaken by the appellant for the period July 2010 to March 2015 is an exempted service.

Analysis:
1. The appellant, engaged in manufacturing and clearance of Spray Nozzles, faced a show-cause notice for E-1 sales activity being considered as trading, leading to a demand for payment under Rule 6(3)(i) of Cenvat Credit Rules 2004. The Commissioner confirmed the demand and imposed penalties, prompting the appellant to appeal.

2. The Tribunal considered the three periods from July 2010 to March 2015 separately. For the first period, the Tribunal held that as Rule 6 was prospective from April 2011, the demand for the period before that was erroneous as there was no liability under the rule.

3. Regarding the second period, the definition of exempted service was amended to include trading activity. The appellant had reversed credit proportionately under Rule 6(3A), which the adjudicating authority did not question. Citing judicial precedents, the Tribunal directed the authority to allow the appellant to exercise the option under Rule 6(3)(a) for determining the exempted value.

4. For the third period, the appellant followed Rule 6(3A) and reversed an amount, which the authority did not dispute. The definition of exempted service post-June 2012 excluded transfer of title in goods, and the appellant had reversed an amount they deemed appropriate.

5. The Tribunal concluded that for the third period, the situation akin to the first period applied, where no mechanism existed to evaluate exempted service, absolving the appellant of any liability.

6. The appeal was partially allowed, absolving the appellant of liability for the first and third periods, while directing valuation for the second period in accordance with the law.

7. In a related appeal concerning an individual, the Tribunal found no independent charge held by the Accounting Manager, absolving them of liability under Rule 6. No mens rea was alleged, and the appellant acted in good faith, leading to the penalty being set aside and the appeal being allowed.

This detailed analysis covers the issues raised in the judgment comprehensively, highlighting the key legal points and decisions made by the Tribunal.