2019 (5) TMI 1014 - AT - Central Excise

CENVAT Credit - trading (high sea sales) as well as manufacturing of goods - trading as an exempt services - Rule 6(3) of CENVAT Credit Rules 2004 - Invocation of extended period and penalty - suppression of facts or not - HELD THAT - A pure sale, unassociated with delivery of goods and services together, is not to be considered as service - sale of goods-be it made in the high sea or within the territorial boundary of India in which Finance Act, 1994 has its force, cannot be called a service to impose tax liability or deny the credit under Rule 6 of Cenvat Credit Rules. Trading is not at all a service, as it is a sale of goods for which vat is applicable and as because it is not a service, it is put in the exempted category as an example that trading is not a service for which exemption is also applicable. Likewise audit report cannot be the sole consideration for invocation of extended period to demand duty and impose of penalty under Section 11AC of the Central Excise Act. Moreover, application of formula for computation and arrival at a figure varies on the basis of understanding of the formula and its proper application that cannot be considered as wilful violation of the provision of the Act or Rule only on the ground that re-computation of the previous period on one occasion was accepted by the respondent and duty demand was met, since rule of acquiescence pre-supposes repeated acceptance of the same thing. It cannot be said that only because audit party had found some credit availed as inadmissible, suppression of fact is made out. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Invocation of extended period for imposing duty liability
- Correct application of CENVAT credit rules
- Dispute regarding taxability on trading of goods
- Consideration of audit report for duty demand

Analysis:

1. Invocation of extended period for imposing duty liability:
The Appellant-department challenged the order of the Commissioner (Appeals) that set aside the imposition of duty liability along with interest and penalty under Section 11AC of the Central Excise Act 1944. The dispute arose from the respondent's alleged incorrect application of Rule 6(3)(iii)(3) of the CENVAT Credit Rules 2004, specifically related to the availing of CENVAT credit on common input services. The audit report highlighted this issue, leading to a show-cause notice and subsequent adjudication. The Commissioner (Appeals) set aside the duty demand, leading to the appeal by the Appellant and the cross objection by the respondent.

2. Correct application of CENVAT credit rules:
The Appellant contended that the respondent's actions reflected a deliberate contravention of Rule 6(3) of the CENVAT Credit Rules 2004, despite corrections made in response to the audit report. On the other hand, the respondent argued that the confusion arose due to the faulty description of the formula prescribed in Rule 6(3A)(C)(iii). The respondent justified its method of availing CENVAT credit on common input services proportionately and argued that the amended formula had retrospective application, as supported by a previous CESTAT decision. The Tribunal analyzed the correct application of the CENVAT credit rules and upheld the order of the Commissioner (Appeals).

3. Dispute regarding taxability on trading of goods:
The Tribunal delved into the taxability of trading goods, emphasizing that a pure sale, unassociated with the delivery of goods and services together, should not be considered a service. The statutory definitions under the Finance Act, 1994 and the CENVAT Credit Rules 2004 were examined to determine the tax liability on trading activities. The Tribunal clarified that trading of goods, being a sale, should not attract tax liability or impact the availing of CENVAT credit under Rule 6.

4. Consideration of audit report for duty demand:
The duty demand was primarily based on the EA-2000 audit report, which the Tribunal scrutinized to assess the validity of invoking the extended period for demanding duty and imposing penalties. The audit procedures, including EA audit and CERA audit, were discussed to determine the significance of audit findings in establishing duty liability. The Tribunal highlighted that the audit report alone should not be the sole basis for invoking the extended period and imposing penalties under the Central Excise Act.

In conclusion, the Tribunal dismissed the appeal of the Appellant-department and confirmed the order of the Commissioner (Appeals), while allowing the cross objection filed by the respondent. The judgment provided a detailed analysis of the issues related to the correct application of CENVAT credit rules, taxability on trading of goods, and the significance of audit reports in determining duty liability.