2014 (1) TMI 1332 - HC - Central Excise

Appeal challenging pre-deposit order dismissed, time extended for deposit, appeal allowed for final disposal

The High Court dismissed the appeal challenging the order for pre-deposit under the Central Excise Act, extending the time for pre-deposit and allowing ... Pre-deposit under Section 35F of the Central Excise Act, 1944 - eligibility of Cenvat credit on input services used for traded goods - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - apportionment of common input credit between manufacturing and trading activities - stay pending appealPre-deposit under Section 35F of the Central Excise Act, 1944 - stay pending appeal - apportionment of common input credit between manufacturing and trading activities - Validity of the Tribunal's direction that the appellant should pre-deposit Rs.1,00,00,000/- for prosecution of its appeal under Section 35G. - HELD THAT: - The Tribunal had prima facie held that the input services in question were used in the appellant's trading activity and not in manufacture or in providing output services as defined in rule 2(l) of the Cenvat Credit Rules, 2004, and recorded the appellant's own statement that 90% of turnover related to traded goods and 10% to manufactured goods. Earlier authorities relied upon by the appellant were examined and distinguished: BHEL-GE and Ericsson dealt with restriction under rule 6(3) and did not decide the specific question whether services used for traded goods satisfy the definition in rule 2(l). Given the prima facie conclusion and the proportion of turnover stated before the Tribunal, the Tribunal reduced the confirmed demand to a pre-deposit of Rs.1 crore for stay purposes. The High Court found no reason to interfere with the Tribunal's exercise at the interlocutory stage, observing that the appellant's substantive contentions require in-depth consideration at the final hearing before the Tribunal. [Paras 3, 5, 7]Tribunal's direction for pre-deposit of Rs.1,00,00,000/- upheld; High Court declined to grant unconditional stay of pre-deposit.Eligibility of Cenvat credit on input services used for traded goods - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - Whether the substantive question of entitlement to Cenvat credit for input services used in trading activities is finally determined at the interlocutory stage. - HELD THAT: - The Court emphasised that the substantive question - whether input services used for traded goods satisfy the definition of input service under rule 2(l) and thereby attract Cenvat credit - was not decided on merits by the High Court. The Court noted that the appellant may rely on earlier decisions at the final hearing, but that such in-depth examination is not appropriate on a stay application. Consequently, the merits remain to be considered and adjudicated by the Tribunal at final hearing. [Paras 5, 6, 7]Substantive entitlement to Cenvat credit on services used for trading remitted for adjudication on merits by the Tribunal at final hearing.Final Conclusion: Appeal dismissed; High Court declined to interfere with the Tribunal's interlocutory direction to pre-deposit Rs.1,00,00,000/-, extended time for the pre-deposit to 31 January 2014, and directed that on production of evidence of such payment the Tribunal will proceed to hear and finally dispose of the appeal on merits. Issues:Challenge to order requiring pre-deposit under Section 35G of the Central Excise Act, 1944.Analysis:The appellant, engaged in manufacturing and trading, availed Cenvat Credit under the Cenvat Credit Rules 2004 for input services used in both activities. A show cause notice was issued seeking recovery of Rs.1.27 Crores of Cenvat credit availed on input services used in trading activities. The Commissioner confirmed the demand, and the Tribunal directed pre-deposit of Rs.1 Crore for the appeal. The appellant contended entitlement to credit for trading activities as a manufacturer and cited precedents where stay was granted for similar credits.In the BHEL-GE Turbine Service case, the Tribunal granted stay for reversed Cenvat credit used in trading. The Ericsson India case followed this decision, granting stay for service tax on input services used in trading without credit reversal. However, these cases did not address whether input services for traded goods met the definition under Cenvat Credit Rules. The appellant also referenced the Coca Cola India case, focusing on merits, and the Colgate Palmolive case, which dealt with rule 6, not rule 2(1) of the Cenvat Credit Rules.A similar issue arose in India Furniture Products Ltd. case, where the Tribunal directed deposit of input credit for traded goods during the stay application. The Tribunal in the present case considered that 90% of the appellant's turnover was from traded goods, reducing the pre-deposit amount to Rs.1 Crore. The High Court found no reason to interfere, noting the need for a detailed examination at the final hearing. The appeal was dismissed, extending the time for pre-deposit, with the appeal to be taken up for final disposal upon producing evidence before the Tribunal.In conclusion, the High Court dismissed the appeal challenging the order for pre-deposit under the Central Excise Act, extending the time for pre-deposit and allowing the appeal to proceed for final disposal based on evidence produced.