2023 (2) TMI 476 - AT - Service Tax

CENVAT Credit - trading/exempt service - input services used in the manufacturing of dutiable goods as well as trading activity - demand of 6% / 7% in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004 - HELD THAT - On the clearance value on which the demand was raised, the appellant have admittedly paid the duty except for the period 19.04.2016 to 23.01.2017 wherein the appellant have not availed Cenvat credit. Thus, the appellant have paid the excise duty/ Cenvat on the clearances on which the demand was raised in the present case. With these details, there was no difficulty to the Adjudicating Authority as well as the appellate authority to arrive at the conclusion that there is no case of demand under Rule 6(3)(i) of Cenvat Credit Rules, 2004. However, both the lower authorities on flimsy ground that details were not given by the appellant, confirmed the demand, which cannot be agreed upon. The Revenue is at liberty to verify calculation of payment and or reversal of Cenvat in respect of inputs cleared as such and clearances on which no Cenvat credit was availed - appeal allowed.

Summary

Issues:
1. Applicability of Rule 6(3)(i) of Cenvat Credit Rules, 2004 on trading of goods.
2. Availment of Cenvat credit on services used in manufacturing and trading activities.
3. Compliance with duty payment and Cenvat credit utilization for manufactured and traded goods.

Analysis:
1. The case involved the department's contention that the appellant, engaged in manufacturing excisable goods and trading, availed Cenvat credit of service tax on various services used in both activities. The department claimed that trading of goods falls under the negative list of services, making it exempt from service tax. Consequently, the appellant was deemed liable to pay a percentage of the value of exempted goods under Rule 6(3)(i) of the Cenvat Credit Rules, 2004.

2. The appellant argued that the show cause notice lacked specificity regarding the items for which credit was availed, making the allegation of credit utilization for trading goods hypothetical. The appellant maintained that excise duty or Cenvat credit was paid for all trading goods and input materials, thus challenging the application of Rule 6(3). The appellant contended that despite the absence of detailed item-wise duty payment records, the duty was paid on all goods considered by the department, citing specific worksheet values as evidence.

3. Upon review, the Member (Judicial) found that the appellant had indeed paid excise duty or utilized Cenvat credit for most clearances, except for a specific period. The Member noted that the lower authorities erred in confirming the demand under Rule 6(3)(i) based on the lack of detailed documentation, despite clear evidence of duty payment and credit utilization. The Member set aside the impugned order, emphasizing that the appellant had fulfilled duty payment obligations for the goods in question. The Revenue was advised to verify payment calculations and Cenvat reversals for inputs where credit was not availed.

In conclusion, the appellate tribunal ruled in favor of the appellant, overturning the demand under Rule 6(3)(i) of the Cenvat Credit Rules, 2004 due to the appellant's demonstrated compliance with duty payment and Cenvat credit utilization, despite the lack of detailed item-wise documentation.