Tribunal overturns cenvat credit reversal, deems show cause notice time-barred

The Tribunal set aside the order reversing the appellant's cenvat credit on service tax paid for the sale of inputs by a commission agent, ruling it did not qualify under the Cenvat Credit Rules. The show cause notice was deemed time-barred as it lacked evidence of intentional evasion of duty by the appellant. The appeal was allowed, granting consequential relief to the appellant.

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Issues:
Challenge against reversal of cenvat credit availed on service tax, consideration of inputs removed from factory premises, applicability of Circular No. 283/117/96-CX, invocation of clauses for intention to evade payment of duty, time-barred show cause notice.

Analysis:

1. The appeal was against an order dated 28.07.2010 regarding the reversal of cenvat credit availed by the appellant. The appellant, a manufacturer, had taken cenvat credit of input and input services under the Cenvat Credit Rules, 2004. The dispute arose when the audit party observed that the appellant had availed service tax credit in September 2007 for Business Auxiliary Services on invoices raised by a commission agent for the sale of input/raw materials. The appellant contested this, leading to a show cause notice issued on 19.02.2009 for reversal of the cenvat credit.

2. The appellant's representative argued that the inputs removed from the factory premises were those they could not use in manufacturing final products, and thus, engaged a commission agent for their sale. They cited judgments from various High Courts and Tribunals to support their case. The limitation aspect was also challenged, claiming the show cause notice was time-barred as there was no evidence of the appellant availing ineligible credit knowingly to evade duty.

3. The respondent contended that the appellant had no case on merits as the service tax paid by the commission agent was for the sale of unused inputs, which did not qualify for cenvat credit. On the limitation aspect, it was argued that the show cause notice clearly stated the appellant's awareness of the ineligibility of availing cenvat credit, suggesting they could have sought clarification before doing so.

4. The Tribunal, after considering both sides' submissions, found that the credit availed on service tax paid for the sale of inputs by the commission agent did not fall under the Cenvat Credit Rules. Regarding limitation, the show cause notice did not allege that the appellant availed credit with the intention to evade duty. It was noted that there was no evidence indicating the appellant's full knowledge of availing ineligible credit, making the notice time-barred. Consequently, the impugned order was set aside on the limitation ground, and the appeal was allowed with consequential relief.

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