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Issues: (i) Whether Cenvat credit on common input services attributable to trading activity was liable to be denied or reversed for the period prior to 01.04.2011; (ii) Whether the demand was barred by limitation in the absence of fraud, collusion or suppression with intent to evade duty.
Issue (i): Whether Cenvat credit on common input services attributable to trading activity was liable to be denied or reversed for the period prior to 01.04.2011.
Analysis: Trading was brought within the definition of exempted services only by the amendment effective from 01.04.2011. Before that date, the scheme of Rule 6 of the Cenvat Credit Rules, 2004 did not provide for denial or reversal of credit merely because common input services were used partly for trading activity. The Tribunal followed its earlier decisions holding that, for the prior period, credit attributable to trading could not be disallowed on that basis.
Conclusion: The credit attributable to trading activity for the period prior to 01.04.2011 was not liable to be denied or reversed, and this issue was decided in favour of the assessee.
Issue (ii): Whether the demand was barred by limitation in the absence of fraud, collusion or suppression with intent to evade duty.
Analysis: The appellate authority had already recorded a final finding that, because the issue was subject to varying interpretations and the ingredients of fraud, collusion or suppression with intent to evade were absent, penalty under Section 78 of the Finance Act, 1994 was not sustainable. That finding, not challenged by the Revenue, was treated as equally applicable to invocation of the extended period under the proviso to Section 73 of the Finance Act, 1994.
Conclusion: The demand for the extended period was held to be time-barred, and this issue was decided in favour of the assessee.
Final Conclusion: The impugned order was set aside and the appeal was allowed, as the credit disallowance and the demand on limitation both failed.
Ratio Decidendi: Prior to the express inclusion of trading as an exempted service, Rule 6 of the Cenvat Credit Rules, 2004 did not permit denial or reversal of common input credit merely because it was used partly for trading, and the extended period cannot be invoked without fraud, collusion or suppression with intent to evade duty.
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