By TIOL News Service

MUMBAI, APRIL 20, 2018: THE issue involved is whether the Appellant is required to reverse the CENVAT credit on the common input service attributed to the trading activity for the period prior to 01/04/2011.

Incidentally, trading activity was considered as exempted service, as per rule 2(e) of CCR, 2004 w.e.f 01.04.2011.

The appellant inter alia submitted that Rule 6 of CCR was applicable only in case where the assessee is involved in the manufacture of exempted as well as dutiable goods and avail cenvat credit on the common input services used in both the categories of goods; that trading activity is not service activity as per the Finance Act, 1994, therefore, it was not exempted service; that during the period prior to 01.04.2011, Rule 6 has no application, accordingly cenvat credit is not required to be reversed.

The appellant further submitted that the entire demand is beyond normal period of one year; that to remove confusion, the legislature amended the definition of exempted service in rule 2(e) of CCR, 2004 and which clearly showed that the law was not clear; that having reflected the trading activity in their ST-3 returns as well as books of accounts which were audited by the department, charge of suppression cannot be invoked.

The Bench inter alia observed -

++ Prior to 01.04.2011, there was confusion whether the trading activity can be treated as exempted service to invoke the provision of rule 6 of Cenvat Credit Rules on the said trading activity. The trading activity was not taxable service, therefore, there was an interpretation that trading being neither service nor exempted service, does not cover under Rule 6 of the Cenvat Credit Rules, 2004.

++ Later on, when the legislators felt that the cenvat credit in respect of input service, if attributed to trading activity, the same cannot be allowed, keeping in mind to bring the trading activity under the purview of rule 6, the definition of exempted service was amended and accordingly the trading activity was brought under the ‘exempted service' w.e.f. 01.04.2011.

++ This development clearly shows that there was a serious interpretation in respect of rule 6(3) and to remove the doubts, amendments, effective 01.04.2011, were incorporated. It is also a fact that this issue was involved in various cases, therefore, it cannot be said that the Appellant alone was involved in availing credit on the common input service and had malafide intention for not reversing the credit.

++ It is a settled law that when there is an interpretation of law and had general practice amongst the mass, it cannot be said that the assessee has malafide intention to avail undue benefit. It is also on record that the Appellant have been declaring the availment of cenvat credit on common input service in their ST-3 return. The appellant have recorded in their books of account the manufacturing activity as well as trading activity. In such situation, it cannot be alleged on the appellant that they have suppressed the facts to evade duty. In absence of any malafide intention and suppression of fact, the extended period of demand cannot be invoked.

On the sole ground of limitation, the impugned order was set aside. The appeal was allowed.

(See 2018-TIOL-1267-CESTAT-MUM)