CENVAT credit on common input services for trading must be re-quantified, with extended limitation and penalty denied in a transitional dispute.

Where common input services were used for taxable services and trading activity, credit attributable to trading was required to be apportioned on the formula later introduced for trading, even for the earlier period, and the amount already reversed needed verification before final quantification. The extended limitation period was not available in this contentious transitional dispute because the record did not support sustained invocation of the longer period, so the time-barred demand was set aside. Penalty was also held unwarranted on the facts, though interest would remain payable on any further amount found due after re-quantification.

---

---

Issues: (i) Whether CENVAT credit attributable to common input services used for taxable services and trading activity had to be re-computed by applying the formula introduced for trading from 01.04.2011, and whether the amount already reversed required verification. (ii) Whether the demand for the period beyond the normal limitation period was barred by limitation. (iii) Whether penalty was sustainable on the facts of the case.

Issue (i): Whether CENVAT credit attributable to common input services used for taxable services and trading activity had to be re-computed by applying the formula introduced for trading from 01.04.2011, and whether the amount already reversed required verification.

Analysis: Trading was not treated as an exempted service prior to 01.04.2011, yet credit attributable to common input services used for trading could not be retained. The method introduced later for apportionment in trading matters was held to be the appropriate basis for quantifying the reversal even for the earlier period where common input services were used and separate accounts were not maintained. Since the assessee asserted that a part of the amount had already been reversed, the actual quantification required verification by the adjudicating authority.

Conclusion: The credit attributable to trading activity had to be recomputed by applying the post-01.04.2011 formula, and the matter was remitted for verification and quantification of the amount actually payable.

Issue (ii): Whether the demand for the period beyond the normal limitation period was barred by limitation.

Analysis: The dispute on whether trading fell within exempted services was considered contentious during the relevant period, and the basis for invoking the extended period was not sustainable on the facts. The demand relating to the period beyond the normal limitation period was therefore liable to be set aside.

Conclusion: The extended-period demand was time barred and was set aside.

Issue (iii): Whether penalty was sustainable on the facts of the case.

Analysis: The case arose in a transitional period after the amendment and the assessee had reversed the amount in respect of trading activity. In these circumstances, imposition of penalty was not justified, though interest would remain payable on any further amount found due on verification.

Conclusion: Penalty was not leviable.

Final Conclusion: The appeal succeeded in part by limiting the liability to the amount, if any, found payable on re-quantification, while setting aside the time-barred demand and deleting penalty.

Ratio Decidendi: Where common input services are used for taxable services and trading activity, the credit attributable to trading must be apportioned on a legally appropriate formula, extended limitation is not available in a contentious transitional dispute absent suppression, and penalty is unwarranted in such circumstances.

---