2024 (4) TMI 860 - AT - Central Excise

Tribunal Remands Case for Fresh Decision After Incorrect Cenvat Credit Calculation; Awaits Supreme Court Judgment.

The Tribunal set aside the impugned order and remanded the case to the adjudicating authority for a fresh decision. It agreed with the appellant that the ... Reversal of proportional CENVAT Credit - manufacture as well as trading activity - demand on the ground that the sale of tyre tube and flap in set to their depot is a trading activity which as per amendment made on 01.04.2011 such trading activity is a exempted service accordingly proportionate credit is required to be reversed - HELD THAT:- The activity of selling the tyre duly fitted with tube and flap whether a trading activity or otherwise is pending before the Hon’ble Supreme Court in appellant’s own case in SLP (CE) No. 34310-34311/2011 wherein two orders were issued by the Hon’ble Supreme Court dated 14.10.2011 and 08.11.2011. In view of this position unless it is decided that the activity is a trading activity or otherwise the consequential liability of proportionate credit in respect of service tax cannot be concluded. Moreover the appellant have vehemently argued that the quantification of proportionate credit is incorrect, this is also reason that the matter needs to be reconsidered as regard the correct quantification of the demand. In this position the entire matter on all the issues need to be reconsidered only after the outcome of the Hon’ble Supreme Court judgment in the appellant’s SLP pending. The impugned order is set aside - Appeal is allowed by way of remand to the adjudicating authority for passing a fresh order. ISSUES PRESENTED AND CONSIDERED 1. Whether the clearance of tyre together with tube and flap as a set to depots (replacement segment) constitutes a 'trading activity' and thereby an exempted service attracting reversal of proportionate Cenvat credit on input services. 2. Whether the clearance of tyre together with tube and flap as a set to Original Equipment (OE) manufacturers, where Cenvat credit on tubes and flaps is availed and the set is cleared to OE, affects the treatment of such transactions as manufacture or trading for purposes of service-reversal. 3. Whether the demand for reversal of proportionate Cenvat credit on input services is correctly quantified by the adjudicating authority. 4. Whether the demand is time-barred or otherwise vitiated by alleged suppression or knowledge on record. 5. Whether the matter should be adjudicated afresh or kept in abeyance pending resolution of a higher forum on the same issue. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether clearance of tyre with tube and flap to depots is a 'trading activity' (legal framework) Legal framework: Amendments treating trading activity as an exempted service (effective 01.04.2011) require reversal of proportionate Cenvat credit attributable to exempted services. Cenvat rules and service-tax reversal principles apply where input services are commonly used for taxable and exempted activities. Precedent treatment: The appellant relied upon several earlier decisions in support of its position; the Tribunal notes that the identical question was sub judice before the Supreme Court in the appellant's SLP. Interpretation and reasoning: The Tribunal examined the factual matrix - supply flow to depots involves receipt of duty-paid tube and flap (no Cenvat claimed at factory for depot supplies), insertion of tube and flap into the tyre, mild inflation, strapping and clearance as a set. The Revenue treats such clearances to depots as trading activity (exempted service) and accordingly seeks proportionate reversal of service-related Cenvat credit. The Tribunal found that the central legal question whether such activity amounts to trading (exempted) or not is pending adjudication before the Supreme Court in the appellant's own proceedings; therefore the question is not conclusively amenable to determination by the adjudicating authority in the present appeal without risking inconsistency with the higher forum's eventual ruling. Ratio vs. Obiter: The finding that the determination of trading vs. manufacture is a decisive issue for the present demand is ratio for remand; observations that the matter is sub judice and should await higher court decision are operative to the decision (ratio guiding remand), not mere obiter. Conclusion: The question whether depot clearances are trading activity (exempted service) cannot be finally decided in this appeal and requires determination in light of the Supreme Court's pending judgment; consequential liability for reversal of proportionate Cenvat credit depends on that outcome. Issue 2 - Treatment of OE segment clearances where Cenvat on tube and flap is availed (legal framework) Legal framework: Where inputs/components (tube and flap) are procured on payment of duty and Cenvat credit is taken by the manufacturer, subsequent clearance to OE manufacturers as a set involves excise duty payment and the OE purchaser avails CENVAT on inputs; the manufacture-versus-trading distinction is relevant to allocation of input-service credits. Precedent treatment: The Tribunal notes that similar factual practices have been the subject of prior litigation and some decisions were cited by the appellant; however, the pivotal classification question remains pending before the Supreme Court in the appellant's SLP. Interpretation and reasoning: The Tribunal treated the facts of the OE clearances as distinguishable factual streams but concluded that the legal question of whether the set-supply process is trading or part of manufacture is common to both OE and depot streams and must be resolved consistently; absent that resolution, allocation of service-related Cenvat cannot be finally determined. Ratio vs. Obiter: The conclusion that OE and depot streams raise the same central legal question and should be subject to the higher forum's determination is ratio for remand. Conclusion: OE segment facts do not independently resolve the classification issue; the ultimate treatment of service-credit reversal must await authoritative pronouncement and then be applied to both streams. Issue 3 - Correctness of quantification of proportionate Cenvat credit demanded Legal framework: Proportionate reversal requires identification of input services that are commonly used for both taxable (manufacture/sale) and exempted (trading) activities and appropriate apportionment; only commonly used input services should be considered for proportionate reversal. Precedent treatment: Appellant contended that the adjudicating authority proceeded on an erroneous basis by taking entire service-tax Cenvat credit for proportionate reversal rather than only those input services commonly used for both activities. Interpretation and reasoning: The Tribunal accepted the appellant's contention that quantification by the adjudicating authority was flawed because it treated entire service-tax credit as subject to proportionate reversal instead of limiting the base to commonly-used input services; this defect in quantification provides independent grounds for reconsideration by the adjudicating authority. Ratio vs. Obiter: The Tribunal's direction that quantification must be revisited is ratio for remand; the observation that quantification was incorrect as a matter of fact and law is an operative finding. Conclusion: The demand as quantified is unsustainable; the matter requires fresh adjudication to correctly identify commonly used input services and compute proportionate reversal. Issue 4 - Time-bar and suppression/knowledge issues Legal framework: Demands may be barred by limitation or vitiated by non-application of limitation principles if suppression is absent and facts were known to the department. Precedent treatment: Appellant argued time-bar and absence of suppression based on prior disclosures and the department's knowledge of the activity. Interpretation and reasoning: The Tribunal noted the appellant's plea of time-bar and absence of suppression but did not make a conclusive finding on limitation; instead it focused on the primary unresolved legal issue (classification as trading) and incorrect quantification as reasons for remand. The Tribunal implicitly treated limitation and suppression contentions as matters to be reconsidered by the adjudicating authority in the fresh adjudication. Ratio vs. Obiter: The Tribunal's non-resolution of time-bar and suppression issues is obiter to the extent it postpones their determination to the adjudicating authority on remand; no substantive ratio declaring time-bar/non-time-bar was laid down. Conclusion: Time-bar and suppression contentions remain open for decision by the adjudicating authority when the other central issues are addressed on remand. Issue 5 - Whether adjudication should await higher forum and remedial direction Legal framework: Principles of judicial comity and avoidance of conflicting decisions support remand/stay where a determinative legal issue is pending before a higher forum and is directly applicable to the matter before the Tribunal. Precedent treatment: The Tribunal relied on the existence of pending Supreme Court orders in the appellant's own SLP as the operative circumstance. Interpretation and reasoning: Given that the question whether the clearance of tyres with tubes and flaps as sets constitutes trading activity is sub judice before the Supreme Court, and given the adjudicating authority's erroneous quantification, the Tribunal concluded it is appropriate to set aside the impugned order and remand the matter for fresh adjudication after the higher court's decision, so that the adjudicating authority can apply the correct legal standard and re-quantify any liability. Ratio vs. Obiter: The remand instruction and setting aside of the impugned order are ratio and form the operative conclusion of the Tribunal. Conclusion: Impugned order set aside; appeal allowed by way of remand to the adjudicating authority for fresh adjudication after the outcome of the pending higher forum proceedings, with specific directions to reconsider (a) whether the depot/OE clearances are trading activity, (b) correct identification of commonly-used input services, (c) correct quantification of proportionate Cenvat reversal, and (d) limitation/suppression issues as necessary.