2023 (11) TMI 465 - AT - Central Excise

CENVAT Credit - common input services such as security service, commission, transport of goods by road, cleaning services etc. used for trading and manufacturing activities - Rule 6(3)(i) of Cenvat Credit Rules, 2004 - HELD THAT - The show cause notice initially states that Rs.51,45,637/- is an amount recoverable under Rule 6(3)(i) of Cenvat Credit Rules, 2004 but when it comes to para 7 of the same show cause notice, Revenue calls upon the appellant to show cause as to why inadmissible cenvat credit availed by the appellant amounting to Rs.51,45,637/- should not be recovered. Further, the original authority has passed the order confirming the demand of cenvat credit availed of the input service credit of Rs.51,45,637/-. It is to be noted here that there was a discrepancy in the show cause notice. Initially the said amount was called as an amount recoverable and subsequently the same amount was called as inadmissible cenvat credit availed. The fact is that the show cause notice does not establish that inadmissible cenvat credit of Rs.51,45,637/- was ever availed. Hon ble Telangana High Court in the case of Tiara Advertising 2019 (10) TMI 27 - TELANGANA AND ANDHRA PRADESH HIGH COURT has held that it is not Revenue which will choose the option to be exercised by the assesse out of the various options provided under Rule 6 of Cenvat Credit Rules, 2004. We also note that the appellant has undertaken to reverse cenvat credit attributable to the credit that has gone into trading. The matter needs to be remanded to the original authority with the direction to recover that quantum of cenvat credit which is part of the cenvat credit availed on common input services and which is attributable to exempted activity of trading - Appeal allowed by way of remand.

Summary

Issues involved:
The issues involved in the judgment are the availing of cenvat credit on common input services for trading and manufacturing activities, the applicability of Rule 6 of Cenvat Credit Rules, 2004, the discrepancy in the show cause notice regarding the inadmissible cenvat credit, and the responsibility of the appellant as Input Service Distributor (ISD).

Availing of Cenvat Credit on Common Input Services:
The appellant, engaged in manufacturing excisable goods, availed cenvat credit on common input services such as security service, commission, transport of goods by road, and cleaning services, used for both trading and manufacturing activities. The Revenue contended that since trading was an exempted service, the appellant was required to pay an amount of Rs.51,45,637/- under Rule 6(3)(i) of Cenvat Credit Rules, 2004. The appellant disputed this, arguing that trading was independent of manufacturing and credit attributable to trading activity was not availed. However, the original authority upheld the demand of cenvat credit availed on input service credit and imposed a penalty. The Tribunal noted the discrepancy in the show cause notice and the lack of specification of the quantum of service tax availed by the appellant on common input services during the material period.

Applicability of Rule 6 of Cenvat Credit Rules, 2004:
The appellant contended that Rule 6 provides three options for taking credit on input services used for exempted goods or services, and Revenue cannot compel the appellant to choose only one option. Citing a ruling by the Hon'ble Telangana High Court, the appellant argued that if an output service provider does not exercise one of the options under Rule 6, Revenue cannot choose on their behalf. The appellant offered to reverse cenvat credit attributable to the exempted trading activity, emphasizing their willingness to pay the attributable cenvat credit out of the common input services.

Discrepancy in Show Cause Notice and Tribunal's Decision:
The Tribunal observed a discrepancy in the show cause notice where the amount initially termed as recoverable under Rule 6(3)(i) was later referred to as inadmissible cenvat credit availed. The show cause notice failed to establish that the inadmissible cenvat credit was actually availed by the appellant. Relying on the Telangana High Court ruling, the Tribunal emphasized that it is the assesse, not Revenue, who should choose the option under Rule 6. Therefore, the Tribunal set aside the impugned order, remanding the matter to the original authority to recover the cenvat credit attributable to the trading activity, based on the data provided by the appellant.

Responsibility of Appellant as ISD:
The Revenue argued that the appellant, as an Input Service Distributor (ISD), distributed input credit through ISD invoices to their various manufacturing units during the material period. It was highlighted that the appellant had taken credit of service tax paid for trading activity in their ISD account. The Tribunal considered this aspect in conjunction with the overall case while directing the appellant to cooperate with Revenue for the necessary data to recover the cenvat credit attributable to the trading activity.