2024 (3) TMI 552 - AT - Central Excise

CENVAT Credit - trading activity - exempted service - availing cenvat credit of service tax paid on certain input services which were utilized by them for manufacture as well as trading purposes (common input services) - non-maintenance of separate records - HELD THAT - It is very clear that Hon ble Supreme Court in CHANDRAPUR MAGNET WIRES (P) LTD. VERSUS COLLECTOR OF C. EXCISE, NAGPUR 1995 (12) TMI 72 - SUPREME COURT has laid down that once a debit entry is made in respect of a credit entry, then the result is as if that credit entry was never made. In other words, the entire cenvat credit availed on common input services being debited before adjudication and at the time of adjudication, it was as if such credit was never availed. Now on the question whether subsequent to the activity of trading, such debit can be effected. Hon ble Delhi High Court has held that since the rules have not provided as to how attributable cenvat credit is to be debited and in advance it would not be known as to how much quantum of trading will take place, it is logical that the attributable cenvat credit is debited after the trading activity is over, may be once in a quarter or once in six months - the appellant had debited the entire cenvat credit availed on common input services. Therefore, it is to be treated that they had never availed such credit. When credit on common input services is not availed, the question of payment of 5% or 6% of the value of exempted services will not arise. The confirmation of demand of Rs.2,44,54,675/- is set aside along with interest and equal penalty - Appeal allowed.

Summary

Issues:
The issues involved in the judgment are related to the availing of cenvat credit on common input services for both manufacturing and trading activities, the requirement to maintain separate accounts for such credits, and the imposition of penalty based on the utilization of these credits.

Manufacturing and Trading Activities:
The appellant was engaged in the manufacture of goods falling under specific chapters of the Central Excise Tariff Act, 1985, while also trading certain bought-out goods and spares. The trading activity, declared as an exempted service from a certain date, involved the sale of goods alongside the manufacturing process. The appellant availed cenvat credit of duty paid on inputs used for manufacturing and trading purposes without maintaining separate accounts for the components of service tax paid on input services. This led to a show cause notice being issued for the period in question, demanding an amount equal to a percentage of the value of the trading activity.

Debiting of Cenvat Credit:
The appellant contended that they had debited the entire cenvat credit availed on common input services before adjudication, citing a ruling by the Hon'ble Supreme Court. This ruling established that debiting inadmissible cenvat credit is equivalent to not availing the credit at all. The appellant argued that since the credit was debited, the confirmation of the demand should not be sustained.

Legal Interpretations and Precedents:
The Tribunal examined the relevant legal interpretations, including a ruling by the Hon'ble Supreme Court in a previous case, which emphasized the importance of maintaining separate accounts for duty-free goods and dutiable goods. The ruling clarified that if credit for inputs used in exempted products is debited before removal of such products, the claim for exemption of duty cannot be denied. Additionally, a ruling by the Hon'ble Delhi High Court highlighted the need to segregate cenvat credit attributable to trading activities and exclude it from the records maintained for availing credit.

Judgment and Conclusion:
After careful consideration of the facts and legal precedents, the Tribunal concluded that since the appellant had debited the entire cenvat credit on common input services, it was as if the credit was never availed. As a result, the demand for payment based on the utilization of such credit was set aside, along with the interest and penalty imposed. The appeal was allowed in favor of the appellant.