2025 (7) TMI 1708 - AT - Central Excise

Trading Activity Exempt Only From 2011-2012; CENVAT Credit Reversal Allowed Under Rule 6(3)(ii) & 6(3A) CCR

Voith Turbo Pvt Ltd Versus Commissioner of Central Tax, Secunderabad - GST

The CESTAT Hyderabad held that trading activity was considered an exempted service only from 01.04.2011 to 30.06.2012 as per the Notification, and prior ... CENVAT Credit - proportional reversal of credit - trading was an exempted service during the relevant period or otherwise for the purpose of CCR, 2004 - common inputs are used for manufacturing of both dutiable and exempted goods/services - extended period of limitation - HELD THAT:- The appellants were found to have been engaged in manufacturing of goods as well as in trading of goods, which was considered to be an exempted service. Therefore, in terms of Rule 6 of CCR, when common inputs are used for manufacturing of both dutiable and exempted goods/services, certain compliances are required to be followed by the appellant, who are otherwise not able to maintain separate accounts for use of such inputs or input service. Insofar as trading being an exempted service or otherwise, it is found that the definition of exempted service was amended vide Notification No.03/2011-CE (NT) dt.01.03.2011 w.e.f. 01.04.2011, whereby, by way of an explanation, it was clarified that exempted service includes trading. Moreover, subsequent thereto, w.e.f. 01.07.2012 till 31.03.2016, the trading activity was brought under the negative list of services. However, there was always a dispute whether exempted services also include the activities which are not at all a service in the first instance. Subsequent to 01.04.2016, various amendments were brought in by way of explanation (3) under Rule 6(1) of CCR vide Notification No.13/2016 dt.01.03.2016, which categorically provided that for the purpose of such rule, exempted services as defined in clause (e) of Rule 2 shall include an activity, which is not a service as defined in section 65B(44) of the Finance Act, 1994. There is force in the argument of the appellant that till 13.04.2016, there was no clarity as regards treating the trading activity as an exempted service for the purpose of Rule 6 of CCR or otherwise. While for the period 01.04.2011 to 30.06.2012, there is clear cut provision that exempted service includes trading, the same cannot be given retrospective effect. Extended period of limitation - HELD THAT:- It is found that clearly there were several conflictions, views and judgments whether trading activity shall be treated as exempted service or otherwise and it was the subject matter of various amendments and interpretations and therefore, in the absence of any specific and positive ground for invoking extended period, the extended period cannot be invoked in the present appeal. Considering the fact that the appellants have already reversed proportionate credit attributable to the activity of trading on their own, therefore, there is no infirmity merely because it has been exercised at a later date or that there was no strict compliance of the procedural requirements under Rule 6(3A) of CCR. Thus, we find merit in the argument that they are entitled for reversal of proportionate credit attributable to trading turnover under Rule 6(3)(ii) read with Rule 6(3A) of the CCR. The matter should be remanded back to the Original Adjudicating Authority to compute the demand in terms of Rule 6(3)(ii) read with Rule 6(3A) of CCR, 2004 and thereafter, appropriate the same, if already discharged along with interest. It is also clarified that the demand of interest on reversal of credit is regulated by the provisions under CCR and if it was only taken and not utilized, in view of the factual matrix, then the interest may not be chargeable in terms of extant provisions applicable during the relevant period. This aspect may also have to be re-examined for the purpose of computing interest, if any. Appeal is allowed by way of remand. ISSUES: Whether trading activity was an exempted service under the Cenvat Credit Rules (CCR), 2004 during the relevant period.If trading was an exempted service, whether the reversal of proportionate Cenvat credit by the appellant was in compliance with Rule 6 of CCR, 2004.Whether the extended period of limitation for demand under CCR could be invoked in the absence of suppression, fraud, or mala fide intention.Whether interest is payable on proportionate credit reversed but not utilized by the appellant.Whether penalty under section 11AC of the Central Excise Act, 1944 is imposable in the facts of the case. RULINGS / HOLDINGS: Trading was not an exempted service under CCR, 2004 prior to 01.04.2011 as the amendment including trading within exempted services cannot be given retrospective effect; however, trading was clearly included as exempted service from 01.04.2011 to 30.06.2012.The appellant is entitled to reverse proportionate credit attributable to trading turnover under Rule 6(3)(ii) read with Rule 6(3A) of CCR, and the department must verify the correctness of such reversal; the demand under Rule 6(3)(i) based on fixed percentage is not appropriate once proportionate reversal is made.The extended period of limitation cannot be invoked as the issue involves interpretation of law and there is no evidence of suppression, fraud, or mala fide intention by the appellant.Interest on reversal of credit may not be chargeable if the credit was reversed before utilization, subject to verification under the applicable provisions of CCR during the relevant period.Penalty under section 11AC is not imposable in the absence of substantive grounds and because the extended period for demand is not invokable. RATIONALE: The Court applied the amendments to the definition of 'exempted service' under CCR, 2004, particularly Notification No.03/2011-CE (NT) dated 01.03.2011 effective 01.04.2011, and subsequent clarifications including Explanation 3 under Rule 6(1) introduced by Notification No.13/2016 and amended by Notification No.24/2016, which clarified that exempted services include activities not defined as services under Section 65B(44) of the Finance Act, 1994, provided such activities use inputs or input services.The Court relied on precedents holding that retrospective application of the amendment including trading as exempted service is not permissible and that proportionate reversal of credit is the correct compliance mechanism under Rule 6(3)(ii) read with Rule 6(3A) of CCR.The Court recognized conflicting judicial views and legislative amendments over time, concluding that the extended period of limitation cannot be invoked without clear evidence of mala fide intent or suppression, consistent with established case law.The Court emphasized that credit reversed before utilization does not attract interest under CCR, subject to factual verification, aligning with the principle that interest is chargeable only on utilized credit subsequently reversed.The decision reflects adherence to the principle that penalty under section 11AC requires substantive grounds such as fraud or suppression, which were not established in the present facts, and that demands must be confined to the normal period where extended limitation is not applicable.