2021 (11) TMI 339 - AT - Service Tax

Reversal of Cenvat Credit - provision of service as well as trading of goods which was an exempt service - show cause notice was issued demanding 6% of the trading turnover as ineligible Cenvat credit availed by the Appellant during the period under dispute - HELD THAT - the Appellant has availed Cenvat credit of ₹ 41,17,269/- during the period under dispute while the confirmation of demand for recovery is ₹ 3,29,07,268/-. In this regard we are in agreement with the decision of the Tribunal in the case of Mercedes Benz 2015 (8) TMI 24 - CESTAT MUMBAI . It is not disputed by the Revenue that the Appellant has availed Cenvat credit only to the extent of Rs. ₹ 41,17,269/- during the period under dispute. Hence, we are of the opinion that the demand as confirmed by the Adjudicating Authority cannot be sustained at all. Further, it is seen that the Department has mechanically applied 6% of the entire balance sheet turnover of the Appellant without detailing as to why the said turnover has been taken and why not the value of trading as provided in the Rules viz. the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten percent of the cost of goods sold, whichever is more. Thus, we find that the entire computation of demand in the instant case has been done without applying the legal provisions and hence the same cannot be sustained in our view. When the audit wing had already verified the books of accounts of the Appellant and had sought reversal of Cenvat credit of ₹ 1,82,114/- along with interest and penalty which was subsequently paid by the Appellant, then issuance of the instant SCN seeking reversal of Cenvat credit under Rule 6 of CCR 2004 by invoking extended period of limitation cannot be sustained. In view of the above discussions and the settled legal judicial precedence and provisions contained in statutes referred to above, the demand cannot be sustained and is therefore set aside.

Summary

Issues Involved:
Appellant's liability to reverse Cenvat credit under Rule 6 of Cenvat Credit Rules, 2004 for the period 2011-12 to 2014-15.

Detailed Analysis:

Issue 1: Appellant's Liability to Reverse Cenvat Credit
The appeal was filed against the Order-in-Original confirming the demand for recovery of Cenvat credit of ?3,29,07,268 under Rule 6 of the Cenvat Credit Rules, 2004. The Appellant, engaged in trading and provision of services, had availed Cenvat credit on input services but faced allegations of improper documentation. The Appellant argued that the demand exceeded the total Cenvat credit availed and cited legal precedents like the case of Mercedes Benz to support their position. They contended that the demand calculation was erroneous and should be limited to the turnover of the specific unit. The Appellant also emphasized their choice of availing the option under Rule 6(3)(ii) and challenged the invocation of extended period of limitation. The Tribunal noted discrepancies in the Department's calculation and found that the demand was unsustainable based on the actual Cenvat credit availed by the Appellant.

Issue 2: Calculation of Demand and Compliance with Legal Provisions
The Tribunal observed that the Department had mechanically applied 6% of the entire balance sheet turnover without proper justification, contrary to the prescribed methods in the Rules. The Appellant's compliance with the audit report and reversal of Cenvat credit as per the audit findings were highlighted. The Tribunal emphasized that the Department's demand lacked legal basis and the invocation of extended period of limitation was unjustified. Citing the case of Castrol India Ltd., the Tribunal concluded that the demand was not supported by factual or legal grounds. The Appellant's penalty for misclassification of services was also considered in the context of the overall demand calculation.

Conclusion:
Based on the detailed analysis and legal interpretations, the Tribunal set aside the demand, ruling in favor of the Appellant. The decision was grounded in the proper application of legal provisions, examination of audit reports, and adherence to established judicial precedents. The appeal was allowed, providing consequential relief to the Appellant as per the law.