2019 (8) TMI 1174 - HC - Central Excise

Extended period of limitation - CENVAT Credit - trading activity - exempt services or not - bonafide belief - HELD THAT - The position was clarified by the Government by insertion of Explanation only with effect from 1.4.2011 that the trading activity will be Exempted Services. The Explanation is clarificatory in nature and can be held to be applicable even for the past period. Thus, at the relevant period of time, viz., from April 2009 to March 2011 , the Assessee was, obviously, under bona fide belief in view of the conflicting decisions of the Tribunals during that period and taking the trading activity as Exempted Services, availed the CENVAT Credit which is sought to be reversed and recovered by the Department invoking the extended period of limitation. Such a bona fide belief cannot be held to be done with ulterior purpose for evading the Duty and therefore, the extended period of limitation would not be available to the Revenue Authority in view of the aforesaid decision rendered by the Hon'ble Supreme Court in COMMISSIONER OF CENTRAL EXICSE, VAPI VERSUS M/S. KOLETY GUM INDUSTRIES 2016 (5) TMI 275 - SUPREME COURT . Appeal dismissed - decided against Revenue.

Summary

Issues:
Revenue's appeal against CESTAT order allowing Assessee's claim for CENVAT Credit for trading activity pre-2011; Applicability of extended period of limitation for invoking recovery; Bona fide belief of Assessee in availing credit; Interpretation of conflicting judgments; Adjudication based on bona fide belief or intent to evade payment; Relevance of subsequent clarificatory explanation; Precedence of Supreme Court judgment on extended limitation period.

Analysis:
The High Court addressed the Revenue's appeal challenging the CESTAT order favoring the Assessee's entitlement to CENVAT Credit for trading activity before 2011. The key issue revolved around whether the extended limitation period could be applied for recovery. The Assessee contended a bona fide belief in claiming the credit, citing conflicting tribunal decisions during the relevant period. The Court noted that a subsequent clarificatory explanation, effective from 1.4.2011, deemed trading as Exempted Services. This clarification retroactively applied to the period in question, indicating the Assessee's genuine belief based on the prevailing legal ambiguity.

The Court highlighted the relevance of the Assessee's consistent filing of service tax returns and adherence to audit procedures, indicating no intent to evade payment. Contrary to the Revenue's argument, the Court emphasized that the Assessee's actions were not mala fide. The Court referenced the Supreme Court's ruling in Kolety Gum Industries case, emphasizing that in cases of conflicting judgments and bona fide classification, the extended limitation period should not be invoked against the Assessee.

Furthermore, the Court distinguished the Gujarat High Court's decision and a local Division Bench ruling cited by the Revenue, asserting that the subsequent explanatory provision favored the Assessee's position pre-2011. Consequently, the Court dismissed the Revenue's appeal, citing the precedence of the Supreme Court judgment and the absence of merit in the Revenue's contentions. The decision upheld the Assessee's bona fide belief and rejected the application of the extended limitation period for recovery.