Post-clearance sale of manufactured vehicles was not trading, and Rule 6 credit reversal failed without proof of exempted service nexus.

Post-clearance sale of vehicles manufactured on job work basis through Regional Sales Offices was not trading, because the goods were first manufactured and cleared on payment of duty and no independent purchase-resale activity was shown. Rule 6(3) of the CENVAT Credit Rules, 2004 did not apply because no separate exempted service or identifiable common input service nexus with alleged trading was established, so credit reversal or payment was not warranted. The extended limitation also failed since the transactions were disclosed in statutory records and no suppression or wilful misstatement was proved; the penalties based on the demand therefore could not survive.

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Issues: (i) Whether the appellant's post-clearance sale of vehicles through Regional Sales Offices constituted trading amounting to exempted service under Rule 2(e) of the CENVAT Credit Rules, 2004; (ii) whether Rule 6(3) of the CENVAT Credit Rules, 2004 applied so as to require reversal of credit or payment of amount; (iii) whether the demand in the first notice was hit by limitation and whether the penalties were sustainable.

Issue (i): Whether the appellant's post-clearance sale of vehicles through Regional Sales Offices constituted trading amounting to exempted service under Rule 2(e) of the CENVAT Credit Rules, 2004.

Analysis: The arrangement showed that the appellant manufactured and assembled the vehicles on job work basis at its factory and cleared them on payment of excise duty under the valuation framework applicable to such manufacture. Mere subsequent sale or distribution of the same vehicles through Regional Sales Offices did not change the character of the activity from manufacture to trading. Trading, in the commercial sense, requires purchase and resale without manufacturing, and no material established that the appellant independently purchased finished vehicles for resale as a trader.

Conclusion: The allegation of trading amounting to exempted service was not established and is rejected.

Issue (ii): Whether Rule 6(3) of the CENVAT Credit Rules, 2004 applied so as to require reversal of credit or payment of amount.

Analysis: Rule 6 applies only where an assessee is engaged in dutiable and exempted activities and common inputs or input services are used for both. The record did not show any independent exempted service or identify any specific input service used for the alleged trading activity. The demand was founded only on the premise that post-clearance sales amounted to trading, which was insufficient. The principle against artificial bifurcation of a single manufacturing activity to invoke credit reversal also supported the appellant's case.

Conclusion: Rule 6(3) was not applicable and the demand raised under it was unsustainable.

Issue (iii): Whether the demand in the first notice was hit by limitation and whether the penalties were sustainable.

Analysis: The transactions were reflected in statutory records, financial statements and annual reports, and the demand arose from audit scrutiny of those records. No evidence of suppression of facts or wilful misstatement was shown. In the absence of such ingredients, extended limitation could not be invoked. Since the demand itself failed on merits, the penalties based on that demand also could not survive.

Conclusion: The extended period was not justified and the penalties were not sustainable.

Final Conclusion: The impugned orders could not be sustained because the appellant was not shown to be engaged in taxable trading activity, the credit-reversal provision was inapplicable, and the time-bar invocation for the first notice failed; the appeals succeeded with consequential relief.

Ratio Decidendi: Post-clearance sale of goods manufactured on job work basis does not, by itself, constitute trading or exempted service for the purpose of Rule 6, unless an independent exempted activity and nexus with common input services are established.

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