Tribunal overturns credit reversal demand on high-sea sales, ruling in favor of appellants

The Tribunal allowed the appeal, setting aside the demand for credit reversal and penalties imposed on the appellants for availing Cenvat credit on high-sea sales. The Tribunal held that high-sea sales outside Indian jurisdiction do not constitute exempted trading activity under the Cenvat Credit Rules, leading to the demand being deemed unsustainable. Consequently, the appeal was allowed, and the impugned order was overturned, providing relief to the appellants.

---

---

Issues:
Demand raised for availing credit on common input services used for trading activity and manufacturing activity.

Analysis:
The appellants, manufacturers of alarm and signalling devices, availed Cenvat credit on duty paid on inputs, capital goods, and service tax on input services. An audit revealed high-sea sales during 2012-13 to 2016-17, considered exempted services by the department, leading to credit reversal and interest payment by the appellants. The department alleged contravention of Rule 14 of Cenvat Credit Rules, 2002, issued a show-cause notice for demand, interest, and penalties. The original authority confirmed the demand and penalties, upheld by the Commissioner (Appeals), prompting this appeal.

The appellant's counsel argued that the trading, including high-sea sales, occurred beyond Central Excise authorities' jurisdiction, challenging the demand for exempted service. Citing precedents like M/s. Rajpetro Specialities Pvt. Ltd. and M/s. Ramboll Imisoft Pvt. Ltd., the appellant contended that high-sea sales outside Indian territory cannot be considered exempted trading activity under Cenvat Credit Rules.

The Revenue's representative supported the impugned order, asserting the appellants wrongly availed credit on trading activities, justifying the demand, interest, and penalties. The Tribunal analyzed the issue in light of precedents, emphasizing that high-sea sales outside Indian jurisdiction do not constitute exempted trading activity, as per Rule 2(e) of Cenvat Credit Rules, 2004. Consequently, the demand was unsustainable, leading to the appeal's allowance with any consequential relief.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal due to the trading activity's occurrence outside Central Excise authorities' jurisdiction, rendering the demand invalid.

---