Manufacturer denied CENVAT credit for pre-2011 trading activity; directed to repay with interest and penalty

The tribunal ruled that the manufacturer was ineligible for CENVAT credit on input services related to trading activity before 1.4.2011. The appellant was directed to reverse credit taken, pay a substantial amount with interest and penalty, and comply with deposit requirements within a specified timeframe. The tribunal agreed that the appellant should only pay interest for the period from October 2006 to March 2008 due to the removal of the 20% credit limit. Additionally, the appellant was found liable to reverse proportionate CENVAT credit based on trading turnover until March 2011.

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Issues:
Eligibility of manufacturer for CENVAT credit on input services for trading activity before 1.4.2011.

Analysis:
The judgment addresses the eligibility of a manufacturer to avail CENVAT credit of input services concerning trading activity conducted before 1.4.2011. The appellant had utilized CENVAT credit during the period from October 2006 to March 2008, but was deemed ineligible for such credit in relation to trading activity from April 2009 to March 2011. The appellant was directed to reverse credit taken and pay a substantial amount with interest and penalty imposed under relevant rules.

Regarding the period from October 2006 to March 2008, the appellant's counsel argued that the appellant should not have availed more than 20% of the CENVAT credit due to providing both taxable and exempted services during that time. It was contended that since the 20% requirement was removed in 2008, the appellant should only be liable to pay interest for that period. The tribunal concurred with this argument.

For the period from April 2009 to March 2011, the appellant's counsel asserted that trading was not considered a service during that time, citing relevant case law. It was argued that the insertion of an explanation to a specific rule did not have retrospective effect, thus trading could not be deemed exempted service before 1.4.2011. Relying on precedents, the tribunal found the appellant liable to pay interest on irregularly availed credit up to March 2008 and to reverse proportionate CENVAT credit based on trading turnover until March 2011. The tribunal accepted the data provided by the appellant for this period and calculated the proportionate credit payable, directing the appellant to deposit the required amounts within a specified timeframe.

In conclusion, the appellant was instructed to comply with the deposit requirements for the irregularly availed CENVAT credit and balance dues within a specified timeframe. The tribunal granted a stay against recovery during the appeal's pendency, subject to compliance with the deposit obligations.

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