2018 (11) TMI 1223 - AT - Service Tax

CENVAT Credit - common input services which were consumed for carrying out the activity of manufacturing dutiable goods and also for trading activity - non-maintenance of separate records - Held that - he appellant seems to have confused with regard to traded goods and trading activity. The traded goods cannot be considered as an exempted goods whereas the trading activity as per Rule 2(e) of CENVAT Credit Rules, 2004 is an exempted service. The appellants do not have a case that they have maintained separate accounts with regard to the common input service used for trading and manufacturing activity - the demand raised is legal and proper and requires no interference. Penalty - Held that - However, the appellant has been maintaining register with regard to the traded goods on the bonafide belief that they are maintaining separate accounts as provided under Rule 6(2) of CENVAT Credit Rules, 2004 and has not availed credit on such goods - the penalty imposed is unwarranted and requires to be set aside. Appeal allowed in part.

Summary

Issues:
1. Jurisdictional challenge based on the investigating and adjudicating authorities being the same.
2. Eligibility of CENVAT credit on common input services used for manufacturing and trading activities.
3. Maintenance of separate accounts for traded goods.
4. Imposition of penalty.

Jurisdictional Challenge:
The appellant raised a jurisdictional challenge, arguing that the investigating and adjudicating authorities being the same violated natural justice. The show cause notice was issued by the Audit Circle Wing, but adjudicated by a different officer. The Tribunal noted that Circular No.1053/2/2017-CX authorized Central Excise officers in the Audit Commissionerate to adjudicate show cause notices. Thus, the adjudication by the Assistant Commissioner was deemed to be within jurisdiction.

Eligibility of CENVAT Credit:
The appellant contended that they maintained separate accounts for traded goods, asserting that the demand for CENVAT credit was unjustified. However, the Tribunal clarified that while the traded goods themselves were not exempted, the trading activity qualified as an exempted service under Rule 2(e) of CENVAT Credit Rules, 2004. As the appellant failed to demonstrate separate accounts for common input services used in trading and manufacturing, the demand for credit was upheld.

Maintenance of Separate Accounts:
Although the appellant maintained registers for traded goods under Rule 6(2) of CENVAT Credit Rules, 2004, they did not avail credit on such goods. The Tribunal acknowledged the appellant's efforts but found the penalty imposed to be unwarranted. Consequently, the penalty was set aside, while the duty and interest remained unchanged. The Tribunal partially allowed the appeal by modifying the order to exclude the penalty.

Imposition of Penalty:
The Tribunal found the penalty imposed on the appellant to be unjustified, considering their adherence to maintaining registers for traded goods without claiming credit. Consequently, the penalty was set aside, while the duty and interest components of the demand were left unaffected. The Tribunal's decision focused on the lack of separate accounts for common input services used in both manufacturing and trading activities, leading to the denial of the appellant's challenge against the demand for CENVAT credit.