2021 (8) TMI 166 - AT - Service Tax

Tribunal limits CENVAT credit demand, sets aside interest & penalties

The Tribunal held that the extended period of limitation could not be invoked, and the demand for CENVAT credit was limited to the normal period. The case ... Extended period of limitation - reversal of CENVAT Credit - case of appellant is that the appellant did not utilize the CENVAT credit and the proportionate credit attributable to trading was reversed prior to utilization and therefore, the demand of interest and imposition of penalty is not sustainable - suppression of facts or not - HELD THAT:- The Department was very well aware of the trading activity carried out by the appellant because the details of trading was furnished by the appellant during the relevant period on the basis of which the demand has been raised. The appellant has been regularly filed half-yearly service tax Returns in Form ST-3 with the Department during the relevant period. This Tribunal for the subsequent period has allowed the appeals of the appellant on the ground of limitation by holding that extended period cannot be invoked when there is no suppression of fact with intent to evade duty. Further, the period involved in all the eight appeals is prior to amendment effected in Rule 2(e) of the CENVAT Credit Rules, 2004. Since the learned Counsel has only confined his arguments on limitation and has not pressed on merit on account of conflicting decisions of the various Tribunals and the High Courts, hence the findings are restricted with regard to limitation alone - Since there was no wrong utilization of CENVAT credit and the appellant has reversed the proportionate credit attributable to trading prior to its utilization and therefore the demand of interest and imposition of penalty is not sustainable. The extended period cannot be invoked and the demand of CENVAT credit can only be made with regard to normal period - the matter is remanded to the Original Authority for quantification of the demand for the normal period - Appeal allowed by way of remand. Issues Involved:1. Applicability of Rule 6 of CENVAT Credit Rules, 2004 to trading activities prior to 01.04.2011.2. Whether the amendment to Rule 2(e) of CENVAT Credit Rules, 2004, effective from 01.04.2011, is retrospective or prospective.3. Invocation of the extended period of limitation under Section 11A of the Central Excise Act, 1944.4. Legality of demand for interest and imposition of penalty under the circumstances.Issue-wise Detailed Analysis:1. Applicability of Rule 6 of CENVAT Credit Rules, 2004 to trading activities prior to 01.04.2011:The appellant argued that trading activities were included within the scope of 'exempted service' only through amendments made in the Finance Act, 2011, effective from 01.04.2011. They contended that prior to this date, there was no mechanism to reverse credit for trading activities under Rule 6 of the CENVAT Credit Rules, 2004. The Tribunal noted that during the relevant period, there was significant confusion regarding whether credit could be availed for trading activities and various litigations were pending on this issue.2. Whether the amendment to Rule 2(e) of CENVAT Credit Rules, 2004, effective from 01.04.2011, is retrospective or prospective:The appellant asserted that the amendment to Rule 2(e) should be applied prospectively from 01.04.2011 and not retrospectively. They cited several judicial precedents supporting this view, including the case of CCE, Kerala Vs Larsen & Toubro Ltd. 2015 (39) STR 913 (SC). The Tribunal acknowledged the conflicting judgments on this issue but emphasized that the amendment brought clarity only from 01.04.2011.3. Invocation of the extended period of limitation under Section 11A of the Central Excise Act, 1944:The appellant argued that the demand was confirmed by invoking the extended period of limitation, which is not legally justified as there was no suppression of facts. They regularly filed half-yearly service tax returns (ST-3) and disclosed the details of CENVAT credit availed. The Tribunal found that the Department was aware of the trading activities based on the information provided by the appellant. It was held that the extended period of limitation could not be invoked due to the absence of suppression of facts with intent to evade duty.4. Legality of demand for interest and imposition of penalty under the circumstances:The appellant contended that they did not utilize the CENVAT credit and had reversed the proportionate credit attributable to trading prior to utilization. They argued that the demand for interest and imposition of penalty was not sustainable. The Tribunal agreed, citing decisions such as CCE & ST LTU, Bangalore Vs Bill Forge Pvt. Ltd.-2012 (279) ELT 209 (Kar.), which held that interest and penalty are not applicable when credit is reversed before utilization.Conclusion:The Tribunal concluded that the extended period of limitation could not be invoked, and the demand for CENVAT credit could only be made for the normal period. The case was remanded to the Original Authority for quantification of the demand for the normal period. The Original Authority was also directed to examine whether the appellant had already reversed the CENVAT credit and adjust the demand accordingly. Interest and penalties related to the extended period were set aside. The appeals were partly allowed, confirming the demand only for the normal period.