2024 (12) TMI 594 - AT - Central Excise

Extended limitation period cannot be invoked for irregular CENVAT credit when proper records maintained under Section 11A

M/s Coca Cola India Pvt. Ltd. Versus Commissioner of Central Excise, Pune-III

CESTAT Mumbai held that extended period of limitation under Section 11A proviso of Central Excise Act, 1944 cannot be invoked for irregular CENVAT credit ... Eligibility of CENVAT Credit on inputs and input services used for trading activities - invocation of extended period of limitation - exempt service or not - appellants have filed this appeal on the sole ground that the proviso clause appended to Section 11A of the Central Excise Act, 1944 cannot be invoked against the appellants, inasmuch as there is no element of suppression, willful mis-statement, collusion etc., with the intent to evade the Government revenue. HELD THAT:- It is found that based on the Books of Account maintained by the appellant, the Audit Wing of the Department had pointed out the mistake regarding irregular availment of the CENVAT Credit on the inputs used in the trading activity. Since the appellants have maintained adequate records to capture the details of CENVAT Credit, it cannot be said that availment of CENVAT Credit on the trading activity was owing to the reason of fraud, collusion, willful mis-statement etc. Hon'ble Madras High Court in the case of Shriram Value Services Pvt. Ltd. [2019 (8) TMI 1174 - MADRAS HIGH COURT] has also held that in the facts and circumstances of the case, extended period of limitation cannot be invoked for confirmation of the demands beyond the normal period provided under Section 11A of the Act 1944. The judgment of Hon'ble Delhi High Court in the case of Lally Automobiles Ltd. [2018 (7) TMI 1679 - DELHI HIGH COURT] relied upon by the learned AR for the Revenue is distinguishable from the facts of the present case, inasmuch as in the said decided case, the assessee-appellant did not maintain any record to demonstrate taking of CENVAT Credit of central excise duty paid on the inputs, which were used for providing the trading activity. In the case in hand, since the appellants had maintained their Books of Accounts, capturing the details of CENVAT Credit taken on the inputs, the show-cause notice was required to be issued for the normal period provided under subsection (1) of Section 11A of the Central Excise Act, 1944 and the extended period of limitation cannot be invoked for effecting such recovery. There are no merit in the impugned order, insofar as it has confirmed the adjudged demands by invoking the extended period of limitation. Therefore, the impugned order, to that extent, it has confirmed the adjudged demands beyond the normal period of limitation, is set aside and the appeal to such extent is allowed in favour of the appellants. Appeal allowed. Issues Involved:1. Eligibility of CENVAT Credit on inputs and input services used for trading activities.2. Invocation of the extended period of limitation for demand recovery.3. Interpretation of 'exempted service' under Rule 2(e) of the CENVAT Credit Rules, 2004.Issue-wise Detailed Analysis:1. Eligibility of CENVAT Credit on Inputs and Input Services Used for Trading Activities:The appellants were engaged in manufacturing excisable goods and trading activities. The audit by the Department revealed that trading should be considered an 'exempted service' as per Rule 2(e) of the CENVAT Credit Rules, 2004. Consequently, the appellants were deemed ineligible to avail CENVAT Credit on inputs and input services used for trading. The definition of 'exempted service' was amended effective from April 1, 2011, to explicitly include trading activities. Prior to this amendment, the appellants did not reverse the CENVAT Credit for trading activities, as trading was not explicitly considered an exempted service. The Tribunal noted that the appellants had reversed the CENVAT Credit for the period 2011-12 upon being informed by the audit, indicating compliance post-clarification.2. Invocation of the Extended Period of Limitation for Demand Recovery:The appellants challenged the invocation of the extended period of limitation for demands covering 2007-08 to 2010-11, arguing the absence of fraud, collusion, or willful misstatement. They relied on precedents where the extended period was not applicable due to bona fide interpretation of statutory provisions. The Tribunal agreed, noting that the appellants maintained proper records and the issue of treating trading as an exempted service was contentious and subject to interpretation. The Tribunal cited previous judgments that supported the restriction of demand to the normal period of limitation when the issue involved statutory interpretation.3. Interpretation of 'Exempted Service' Under Rule 2(e) of the CENVAT Credit Rules, 2004:The term 'exempted service' was defined to include services exempt from service tax. An explanation added in 2011 clarified that trading is an exempted service. The Tribunal observed that prior to this clarification, trading was not considered an exempted service, leading to differing interpretations. The Tribunal referenced cases where the retrospective or prospective application of this clarification was debated, ultimately concluding that the appellants' interpretation was bona fide. Consequently, the extended period of limitation could not be invoked for demands based on this interpretation.In conclusion, the Tribunal found no merit in the impugned order's confirmation of demands using the extended period of limitation. The demands beyond the normal period were set aside, and the appeal was allowed to that extent.