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of <h1>CENVAT credit on shared input services used partly for trading: proportionate reversal required; extended limitation partly upheld</h1> CENVAT credit on common input services attributable to trading was held inadmissible because trading is neither a taxable service nor an activity of ... Applicability of time limitation - Availment and utilization of ineligible CENVAT credit on service tax paid on common input services attributable to trading activity also - common input services used for trading as well as for manufacturing activity which is ineligible as trading activity is neither a service nor activity of manufacture - non-maintenance of separate accounts for the common input service used for manufacturing activity and trading activity - difference of opinion - HELD THAT:- Applying the principle of reversal of cenvat credit apportioning to trading activity from the total credit availed on common input services, it is opined that the appellant ought to have reversed the credit, which they have implemented by them from 01.04.2009, for the earlier period also, as activity of trading was neither a service amenable to service tax nor fall within the scope of manufacturing activity. On the contrary, they claimed to have intimated to the department through various communications, discussed above, which found to be misleading and inconsistent; indicates the intention not to reverse the proportionate credit attributable to the trading activity. No doubt the Appellant reversed the proportionate cenvat credit amounting to Rs.35,84,540/- along with interest of Rs.2,25,194/- for the year 2008-09 pursuant to the audit objection, but that cannot contribute to any bona fide belief for non-reversal proportionate credit for earlier period 2006-07 & 2007-08 for which extended period of limitation is invoked, as no evidence has been placed on record harboring such belief. Thus, the extended period is invokable in the present case. In more or similar circumstances, the Hon'ble Bombay in Responsive Industries Ltd. (Unit-II) Vs. Commissioner of CGST and CE, Palghar [2019 (6) TMI 626 - BOMBAY HIGH COURT] upheld the order of the Tribunal in confirming the demand for extended period, where the assessee failed to discharge service tax on out ward GTA service. For the period 2009-10 and 2010-11, it is found that on 15.04.2009, the appellant reversed the cenvat credit for the period 2008-09, pursuant to the audit objection and thereafter commenced reversal of proportionate credit attributable to trading activity. The Department in its report dt. 07.11.2014, in response to direction of the Tribunal during the course of hearing of the Appellant's stay application, informed that the appellant had availed excess credit between 01.04.2009 and 01.04.2011 and sought to recover the same invoking extended period of limitation - there are no merit in the argument of the Revenue as once the audit team of the department has detected the trading activity undertaken by the appellant and in response to the said objection the Appellant reversed proportionate credit on 15.4.2009 for 2008-09, thereafter, it is for the Department to effect recovery of any excess credit for the subsequent period within the normal period of limitation. Suppression of fact cannot be invoked for the period after detection of the fact of availment of inadmissible credit by audit. The credit availed on common inputs services attributable to the trading activity can be recoverable for the period for the period prior to 01.4.2009 invoking extended period. In view of the majority order, it is held that the extended period is invocable. The demand confirmed along with interest is sustained - Appeal disposed off. Issues: (i) Whether the extended period of limitation could be invoked to recover CENVAT credit availed on common input services attributable to trading activity for the period March 2006 to February 2011.Issue (i): Whether the extended period of limitation could be invoked to recover CENVAT credit availed on common input services attributable to trading activity for the period March 2006 to February 2011.Analysis: Trading activity during the relevant period was not liable to service tax and, to the extent common input services were used for trading, credit was not admissible unless the assessee complied with the reversal mechanism and procedural requirements under Rule 6(3) and Rule 6(3A) of the CENVAT Credit Rules, 2004. The majority accepted that non-compliance with the prescribed reversal/declaration mechanism, coupled with non-disclosure of trading-related credit attribution in statutory returns/records, supported invocation of the extended period under the proviso to Section 11A of the Central Excise Act, 1944 for recovery of wrongly availed credit under Rule 14 of the CENVAT Credit Rules, 2004 (with applicable interest under Section 11AB).Conclusion: The extended period of limitation was held invocable; the demand of CENVAT credit along with interest, as confirmed, was sustained.Dissenting Opinion: The dissent held that the extended period was not invocable due to absence of positive evidence of suppression and department awareness through audit/correspondence; it proposed setting aside the extended-period demand, remanding only for quantification within the normal period, and setting aside penalties.
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