Tribunal upholds Revenue's demand for traded goods value, CENVAT reversal, and penalties

The Tribunal upheld the Revenue's demand of Rs. 2,59,80,459/- for the period 1.4.2011 to 31.12.2011 regarding the amount payable on the value of traded goods. Additionally, the Tribunal upheld the demand for reversal of credit proportionate to trading turnover and total turnover for wrongly availed CENVAT on input services falling under Rule 6(5) of the CCR, 2004. The Tribunal also supported the Revenue's method of apportioning common credit for input services not falling under Rule 6(5) and upheld penalties for the extended period due to suppression of facts by the appellants.

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Issues Involved:
1. Amount payable on the value of traded goods for the period 1.4.2011 to 31.12.2011 in terms of Rule 6(3)(i) of CENVAT Credit Rules, 2004.
2. CENVAT wrongly availed on input services (falling under Rule 6(5) CCR, 2004) commonly used for excisable goods and traded goods in contravention of Rule 3 of the CCR, 2004 for the period 2007-08 to 2010-11.
3. CENVAT wrongly availed on input services (not falling under Rule 6(5) CCR, 2004) commonly used for excisable goods and traded goods in contravention of Rule 3 of the CCR, 2004 for the period 2007-08 to 2010-11.

Issue-wise Detailed Analysis:

1. Amount Payable on the Value of Traded Goods (1.4.2011 to 31.12.2011)
Interpretation of Rule 6(3) of the CENVAT Credit Rules:
The appellants sought to avail option (i) of sub-rule (3) of Rule 6 for exempted cigarettes and option (ii) for traded goods. Rule 6(3) provides a mechanism for manufacturers or service providers producing both dutiable and exempted services using common inputs and input services without maintaining separate records. The rule allows the manufacturer to choose any one of the options provided under sub-rule (3) but does not permit availing more than one option.

Appellant's Argument:
The appellants argued that during 1.4.2011 to 31.12.2011, they were allowed to reverse credit as per the formula prescribed under Rule 6(3A) by considering the value of traded goods as equivalent to the difference between the sale price and the cost of goods sold or ten percent of the cost of goods sold, whichever is more. They calculated the reversal amount to be Rs. 10,94,043/-.

Tribunal's Findings:
The Tribunal found that the appellants had exercised the option of paying an amount equal to 5% of the value of exempted goods for cigarettes sold to the Navy. It concluded that the appellants could not exercise a different option for other goods. The Tribunal also noted that the calculation method used by the appellants was flawed as it did not include the entire credit taken in the factory. The Tribunal upheld the demand of Rs. 2,59,80,459/- raised by the Revenue for the period 1.4.2011 to 31.12.2011.

2. CENVAT Wrongly Availed on Input Services (Rule 6(5) CCR, 2004)
Rule 6(5) of CENVAT Credit Rules:
Rule 6(5) allowed full credit on specified services unless used exclusively for exempted goods or services. The appellants claimed that pro-rata disallowance would not apply to common input services mentioned in Rule 6(5) when used for trading.

Appellant's Argument:
The appellants argued that Rule 6(5) supersedes clauses (1), (2), (3), (4), and (6) of Rule 6. They relied on CBEC Circular No. 868/6/2008-CX, which clarified that credit attributable to services mentioned in sub-rule (5) should not be taken into account for determination under Rule 6(3A).

Tribunal's Findings:
The Tribunal referred to previous decisions in SKF India Ltd. and Clariant Chemicals (I) Ltd., which held that Rule 6(5) could not be extended to trading activities. The Tribunal upheld the demand for reversal of credit proportionate to the trading turnover and total turnover.

3. CENVAT Wrongly Availed on Input Services (Not Falling Under Rule 6(5) CCR, 2004)
Appellant's Argument:
The appellants contested the method of quantification for reversing credit for trading activities. They argued that the formula prescribed for the period after 1.4.2011 should be adopted for the period prior to 1.4.2011. They claimed that the formula should consider only the value addition in trading activities, not the total turnover.

Tribunal's Findings:
The Tribunal found that the formula prescribed for the period after 1.4.2011 was not suitable for the period before 1.4.2011. It noted that the formula after 1.4.2011 required detailed accounts for calculating the cost of goods sold in trading, which defeated the purpose of estimation. The Tribunal upheld the Revenue's method of apportioning the common credit in the ratio of exempted and other sales.

Extended Period and Penalty:
The Tribunal upheld the invocation of the extended period and penalties, citing suppression of facts by the appellants. It noted that the primary responsibility of the assessee is to correctly take/reverse the credit, and the appellants had not done so until investigated.

Conclusion:
All appeals were dismissed, and the Tribunal upheld the demands and penalties imposed by the Revenue.

(Pronounced in Court on 14.10.2016)

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