CENVAT credit recovery and trading apportionment: jurisdiction lies against the recipient unit, with pre-deposit required on turnover basis.
Rule 14 of the CENVAT Credit Rules permits recovery of wrongly taken or utilised credit from the person who actually availed it, so jurisdictional excise authorities may proceed against the unit that received credit through an Input Service Distributor. The distribution mechanism does not shift recovery responsibility away from that unit. Trading was treated as an exempted service only prospectively from 01.04.2011; for the prior period, common input service credit linked to trading and manufacturing was to be apportioned on a turnover basis. On that footing, and absent any financial hardship or strong prima facie case, pre-deposit of the disputed credit was directed.
Issues: (i) Whether recovery of wrongly taken CENVAT credit distributed through an Input Service Distributor could be initiated against the unit availing the credit by the jurisdictional excise authority; (ii) whether trading was an exempted service prior to 01.04.2011 and, if so, how common input service credit attributable to trading was to be quantified for the purpose of pre-deposit.
Issue (i): Whether recovery of wrongly taken CENVAT credit distributed through an Input Service Distributor could be initiated against the unit availing the credit by the jurisdictional excise authority.
Analysis: Rule 14 of the CENVAT Credit Rules, 2004 provides that where credit is taken or utilised wrongly, recovery is to be made from the manufacturer or provider who has taken the credit, along with interest, and the recovery machinery under the Central Excise Act applies mutatis mutandis. The distribution of credit through an Input Service Distributor is only a facility under the Rules and does not shift the responsibility for recovery away from the person who actually availed the credit.
Conclusion: The jurisdictional excise authority over the unit availing the credit can initiate recovery against that unit, and the challenge on jurisdiction does not survive.
Issue (ii): Whether trading was an exempted service prior to 01.04.2011 and, if so, how common input service credit attributable to trading was to be quantified for the purpose of pre-deposit.
Analysis: The explanation treating trading as an exempted service was held to operate prospectively from 01.04.2011. For the period prior thereto, trading was not to be treated as an exempted service in the same manner, and common input service credit relatable to both trading and manufacturing was to be apportioned on the basis of turnover. In the absence of any plea of financial hardship and in the absence of a strong prima facie case, the assessee was required to secure the disputed credit by way of pre-deposit.
Conclusion: The demand for pre-deposit based on turnover apportionment was upheld and the appellant was directed to deposit the entire credit demand, with waiver and stay of the balance upon compliance.
Final Conclusion: The order sustains recovery jurisdiction against the assessee and requires pre-deposit of the disputed CENVAT credit, while granting conditional stay of the remaining adjudged dues on compliance.
Ratio Decidendi: Under Rule 14 of the CENVAT Credit Rules, 2004, recovery of wrongly taken credit lies against the person who actually availed the credit, and the characterization of trading as an exempted service is prospective from 01.04.2011 for purposes of credit apportionment.