TaxTMI 
TaxTMI 
2023 (8) TMI 1691
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....ured components and inputs. 2. Based on information that the appellant availed and utilized ineligible CENVAT credit on service tax paid on common input services attributable to trading activity also, the officers of the Headquarters of the Preventive Unit visited the company on 15.6.2009 for verification of accounts. After investigation, it was found that the appellant availed and utilized credit of 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. Appellants had not maintained separate accounts for the common input service used for manufacturing activity and trading activity and had not reversed the proportionate credit availed for trading activity. In view of the above, Show Cause Notice No. 6/2011 dated 1.4.2011 was issued for the period from March 2006 to February 2011 proposing to recover the wrongly availed / ineligible CENVAT credit of service tax paid on input services of Rs.2,01,40,209/ -. After due process of law, the original authority confirmed the demand along with interest and also imposed penalties. Aggrieved by such order, the appellant is now bef....
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....the extended period cannot sustain at all for the reason that the appellant had fully disclosed the details of credit availed in their ER-1 returns and also as and when requested by audit party. The department accepted the payment made by the appellant on 15.4.2009 and the same has been appropriated by the adjudicating authority which would establish that the department was aware about the audit objection raised in the year 2009. 6. The amendment in CENVAT Credit Rules making 'trading' as an exempted service by the Explanation added to Rule 2(e) of CENVAT Credit Rules, 2004 came into force only with effect from 1.4.2011. Prior to this date, the law was not clear as to whether trading is an exempted service. The requirement for reversal of the credit and the method that has to be adopted when common input services have been used for trading activity as well as manufacturing activity was under litigation before various forums. Before the introduction of the amendment, by adding Explanation to Rule 2(e) of CENVAT Credit Rules, 2004, there were different judicial pronouncements holding that trading activity cannot be said to be an exempted service. There were conflicting dec....
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....t was held that when audit party has examined the records and pointed out deficiencies in respect of inadmissibility of credit, it cannot be said that there is suppression of facts. The jurisdictional High Court in the case of Assistant Commissioner of GST and Central Excise, Chennai Vs. Shriram Value Services Pvt. Ltd. reported in 2019 (368) ELT 928 (Mad) has held that there were conflicting decisions during the relevant period holding that trading activity is an exempted service and the position prior to 1.4.2011 was doubtful. Therefore extended period of limitation is not invocable. 10. The learned counsel submitted that major part of the demand is time-barred. 11. The learned AR Ms. Sridevi Tritula supported the findings in the impugned order. She submitted that although the amendment by adding Explanation to Rules 2(e) of the CENVAT Credit Rules, 2004 was introduced with effect from 1.4.2011 only, trading being neither a service nor manufacturing activity, the appellant cannot avail credit of services used for trading activity. During the disputed period, the appellant has availed credit on common input services used for trading as well as manufacturing activity. The err....
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....of remitting the amount may not be concluded to mean that we have accepted our liability. As requested, we are also enclosing a draft working sheet on the possible utilization of service tax credit for the traded activity, for the years 205 - 2006, 2006 - 2007, 2007 - 2008 and 2008 - 2009." 14. In page 111, a copy of letter dated 1.11.2006 issued by the Department to the appellant is enclosed. Reference 5 in the said letter indicates the decision to furnish details with regard to trading activity and service tax input credit taken for the year 2006. The letter dated 16.1.2007 issued by the appellant shows that they have furnished documents sought by the department as per their earlier dated 1.11.2006. A letter dated 11.5.2009 was issued to the appellant by the department wherein the discrepancies noted are stated to be as under :- "(i) Wrong input service credit availed on the input service used in trading goods - Rs.4,51,83,907/-" 15. The above documents clearly show that the department was fully aware that the appellant was availing credit in respect of common services used for trading. They had also received details as and when requested. However, the Sho....
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....avail credit by following the procedures under Rule 6 (2) and (3). Further, they have been filing Service Tax returns regularly and they have been subjected to periodical audit. Even in CERA audit, the said objection was not raised on the availment of credit on common input services used for trading and taxable outcome service. In such circumstances, the appellant cannot be saddled with intention to evade payment of Service Tax. There is no other evidence brought out by the department to conclude that the appellant is guilty of suppression of facts with intent to evade payment of service tax so as to invoke extended period of limitation. We therefore conclude that the show cause notice is time- barred. 6. In the result, the impugned order is set aside and the appeals are allowed on the ground of limitation, with consequential relief, if any." 6. From the above, it is clear that the position was clarified by the Government by insertion of Explanation only with effect from 1-4-2011 that the trading activity will be Exempted Services. The Explanation is clarificatory in nature and can be held to be applicable even for the past period. Thus, at the relevant period of ....
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....collusion, wilful mis-statement or suppression of fact. We, therefore, set aside the demand under the show cause notice dated 3rd May, 1993. 9. As regards the demand under the show cause notice dated 26th February, 1992, Mr. Sridharan states that the Appellant has already paid the amount. He states that he is not pressing this Appeal in respect of the demand under that show cause notice. Thus we see no reason to decide the other question, viz, whether crushing of stones amounts to manufacture and whether a new product has come into existence. We leave this question open." 18. In the case of Royal Enterprises (supra), the Hon'ble Supreme Court held as follows :- "2. In this case parties addressed only on the point of limitation. It was contended before the adjudicating authority as well as the Tribunal that the department could not invoke the extended period of limitation as all facts were already to the knowledge of the department. On this the Tribunal in Para 6 has recorded the following finding : "6. It is clear that details of the appellant's fabrication work for Railway Coach Factory including supply of raw material by the Coach Factory wer....
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....y Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal came to the conclusion that the facts referred to hereinbefore do not warrant any inference of fraud. The assessee declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of the exempted goods which they manufactured at the relevant time. The Tribunal found that the explanation was plausible, and also noted that the Department had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent. The respondent did not include the value of the product other than those falling under Tariff Item 14E manufactured by the respondent and this was in the knowledge, according to the Tribunal, of the authorities. These findings of the Tribunal have not been challenged before us or before the Tribunal itself as being based on no evidence. 9. In that view of the matter and in view of the requirements of Section 11A of the Act, the claim had to be limited for a period of....
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....eriod. The same has to be quantified. 20. From the foregoing, we set aside the demand which falls within the extended period and remand the matter to the adjudicating authority to requantify the demand for the normal period. In such requantification procedure, the adjudicating authority shall consider the contention of the appellant that they have not availed input credit on trading activity after 1.4.2009. So also the adjudicating authority has to verify whether the demand has been made on the entire input credit or the common input credit only. Needless to say that the demand has to be calculated on the basis of common input credit for the normal period and not the entire input credit for the normal period. The appellant is eligible for adjustment of amount that has been already paid in the proceedings. 21. We have already discussed that there were conflicting views during the relevant period. Moreover, in the absence of evidence of suppression of facts, we are of the view that all the penalties imposed are unwarranted. The same are set aside. 22. The impugned order is modified to the extent of setting aside the demand for the extended period and remanding the matter to ....
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....anufacturer or the provider of the output services taking such credit as envisaged under Rule 9 (6) of the CENVAT Credit Rules, 2004. Further, the Monthly returns filed to not cover all the activities especially trading of goods which is not covered under levy of Excise or Service Tax. It is therefore clear that the assessee suppressed fact to the department willfully, with an intent to avail excess credit relating to "trading activity" in order to evade reversal/payment of proportionate ineligible CENVAT credit of Service tax paid on the "Common input-services" attributable to Trading activity causing loss to the Government and hence, the extended period of time limit under proviso to section 11A of Central Excise Act 1944 has been rightly invoked for demanding the same. Since the assessee is liable for payment of the credit wrongly availed, I also hold that they are liable for interest on such credit under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11ab OF THE Central Excise Act, 1944." 2. The limitation is a question of fact dependent upon the existence of the various ingredients as per Section 11A of Central Excise Act, 1944. On the basis of facts of each cas....
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....-08. In my view, appellants failed to produce any document or record to show that these facts were ever made known to the Department. It is also worthy of noting that it is not even the submission of the appellant that these similar details were mentioned in the E.R .- 1 Returns filed by them during the material time. No column is indicated whereby it is shown that appellant made any such declaration on the said returns even when they were receiving the some traded goods in their factory premises and packing them and affixing their logos on the same and then trading them. In absence of any evidence to this effect, I do not find any material evidence available to show that the facts which were specifically in the knowledge of the appellant were ever disclosed to the Department during the material period i.e. till the Audit in April 2008 and visit of Preventive Team during June 2009. Interestingly, the appellants have vide letter dated July 7, 2009, which is reproduced below, stated as follows : "The Assistant Commissioner of Central Excise, Chennai II Commissionerate MHY Complex, 692, Anna Salai, Chennai - 600 035. Dear Sir, ....
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.... Encl .: As above." It is also noted that the payment for the concerned years need to be reversed asper Rule 6 (3) monthly or provisionally and needs to be finalised on yearly basis. In absence of any such column that provisional payments were finalized by the appellants / Range Officer as required under the law, there cannot be any question of application of period of limitation. 6. After introduction of self-assessment, the responsibility on the assessee for making true and fair declarations have increased many folds for the reason of the trust shown by the Government on the assessee. Any decision which strictly was interpreting the provisions of Section 11A for the period prior to introduction of self-assessment and laying down the principles will have to be in consonance of trust which has been shown by the Government on the assessee. In series of judgments of this Tribunal and Supreme Court this view has been upheld. The appellants have also not pointed out a single judgement during the material period to indicate that they have not reversed these amounts in view of conflicting decisions that have been rendered by the Courts or Tribunal. Bonafide belief entertained b....
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...., a Central Excise Officer may, within one year from the relevant date, serve notice on the persons chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if for the words one year, the words, five years were substituted : Explanation. - Where the service of the notice is stayed by an order of a Court, the period of such stay shall be excluded in computing the aforesaid period of [one year] or five years, as the case may be. (1A) XXXXXXX. XXXXXXX. (3) For the purposes of this section - (i) refund includes rebate of duty of excise on ....
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....iod of such stay shall be excluded from computing the aforesaid period of one year or five years, as the case may be. 14. Thus the scheme that unfolds is that in case of non-levy where there is no fraud, collusion, etc., it is open to the Central Excise Officer to issue a show cause notice for recovery of duty of excise which has not been levied, etc. The show cause notice for recovery has to be served within one year from the relevant date. However, where fraud, collusion, etc., stands established the period within which the show cause notice has to be served stands enlarged by substitution of the words one year by the words five years . In other words the show cause notice for recovery of such duty of excise not levied etc., can be served within five years from the relevant date. 15. To put it differently, the proviso merely provides for a situation whereunder the provisions of sub-section (1) are recast by the legislature itself extending the period within which the show cause notice for recovery of duty of excise not levied etc. gets enlarged. This position becomes clear when one reads the Explanation in the said sub-section which only says that the period sta....
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....how cause notice has been served within a period of five years therefrom. 20. Thus, what has been prescribed under the statute is that upon the reasons stipulated under the proviso being satisfied, the period of limitation for service of show cause notice under sub-section (1) of Section 11A, stands extended to five years from the relevant date. The period cannot by reason of any decision of a Court or even by subordinate legislation be either curtailed or enhanced. In the present case as well as in the decisions on which reliance has been placed by the Learned advocate for the respondent, the Tribunal has introduced a novel concept of date of knowledge and has imported into the proviso a new period of limitation of six months from the date of knowledge. The reasoning appears to be that once knowledge has been acquired by the department there is no suppression and as such the ordinary statutory period of limitation prescribed under sub- section (1) of Section 11A would be applicable. However, such reasoning appears to be fallacious in as much as once the suppression is admitted, merely because the department acquires knowledge of the irregularities the suppression would no....
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....n in dispute since long, there are number of decisions of various forums on the same and in all such cases, it has consistently been held that so long as the steel items are used for the manufacture/fabrication of items which are capital goods, credit cannot be denied. The Larger Bench of Tribunal in the case of Vandana Global Ltd., reported in 2010 (253) E.L.T. 440, has denied credit on those steel items which are used for supporting structure of foundation of the capital goods. In the instant case since one of the items were used for supporting structure and/or foundation, the credit could not be denied." 28. We find that the reasons so disclosed in the order of the Commissioner have completely been ignored by the Tribunal only on the ground that the law on the legality of the Cenvat credit on the items in questions, has been declared by the Larger Bench in the year 2010 in the case of Vandana Global Ltd. (supra), therefore, no mala fide can be attributed to the assessee, so as to justify the applicability of the longer period of limitation. 29. In our opinion, the Tribunal is not justified in recording such a finding. 30. From the stand taken by the as....
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....ant facts would rightly result in invocation of extended period of limitation. (Reference paragraph no. 12). 36. Similarly in the case of Commissioner of Central Excise, Visakhapatnam v. Mehta & Company (supra), the Apex Court has explained that where the excisable goods are removed without payment of proper duty of excise, it is explicit that there was an intention on the part of the assessee to evade the payment of duty. (Reference paragraph no. 22). 37. The Division Bench of the Gujarat High Court in the case of Commissioner of Central Excise v. Neminath Fabrics Pvt. Ltd. (supra) has explained that proviso to Section 11 comes into play only when suppression etc. is established or stands admitted. (Reference paragraph no. 18). 38. So far as the judgment of the Apex Court in the case of Continental Foundation Joint Venture (supra) relied upon by the learned counsel for the assessee is concerned, the same is clearly distinguishable in the facts of the present case. In the said case, there were various circulars of department operating at different points of time and there was scope for entertaining a doubt about the views expressed by the authorities them....
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....of the demand is barred by limitation as held by Member (Judicial) Or (ii) Whether the extended period is invocable and the entire demand is to be confirmed as held by Member (Technical) Sd/- (SULEKHA BEEVI C.S.) Member (Judicial) Sd/- (SANJIV SRIVASTAVA) Member (Technical) PER: DR. D.M. MISRA: Heard both sides at length on 19/04/2023. Perused the records and the written submission filed by the Revenue dated 04th May 2023 and the Appellant dated 06th May 2023. 2. The facts of the case have been narrated in the order of the learned Member(Judicial) and needs no elaboration. However, to understand the issue, being revolves more around question of facts, the same needs to be restated in brief. 3. The appellants are manufacturers of "Automatic Door Operators and Door Closures" and parts falling under Chapter 83 of Central Excise Tariff Act, 1985. Besides manufacturing activity of the said items, the Appellant also imported and sold these items as a trading activity. The appellants have availed cenvat credit on service tax paid on various input services which are used both for manufacturing of excisable goods as well as trading of thei....
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....ading and also availing credit on common input services. Hence, no fact was suppressed or mis-declared to the department with intent to evade payment of duty. Secondly, they have also argued that there was no clarity about the issue, that is, whether trading activity is an exempted service or otherwise; the position became clear only after the amendment to the definition of 'input service' w.e.f 01.04.2011 and there were conflicting views on the said issue. 8. The learned Commissioner in his finding confirming the demand for extended period held that the burden of proof regarding admissibility of cenvat credit is placed upon the manufacturer as laid down under Rule 9(6) of Cenvat Credit Rules, 2004. Also, he has observed that monthly returns do not disclose all the activities specially trading of goods being not covered under levy of excise or service tax. Further, he has held the appellant suppressed the facts from the Department willfully, with intent to avail excess credit relating to trading activity and accordingly confirmed the demand for extended period. 9. Learned Member(Judicial) referring to letters dt. 01.04.2006, 01.11.2006, 16.01.2007 and 11.05.2009 held ....
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....ing that there were conflicting views on the subject. Referring to case laws on the subject viz. King Bell Apparels Vs. Commissioner [2019 (365) ELT681 (Mad)], Commissioner Vs. Neminath Fabrics (P) Ltd.[2010(256)ELT 369(Guj.)] and Rathi Steel & Power Vs. Commissioner [2015 (321) ELT200(All)],the learned Member(Technical) held that suppression will not get obliterated merely because some facts were within the knowledge of the Department. 11. I find that there is no dispute of the fact that the appellant during the relevant period 2006-07 to 2008-09 and thereafter continued to carry out the activity of trading of imported items along with activity of manufacturing these items. The worksheet submitted by the appellant for the said period and the Chartered Accountant certificate enclosed reveal that the proportion of trading in the total turnover hovered around 44%-55% during the said period. Analysing the defence of the appellant that the fact of carrying out trading activity and availing cenvat credit on input services common to both manufacturing as well as trading disclosed to the Department time and again during the period by way of submitting data for proposed audit of their r....
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.... turnover. 14. The second line of defence advanced by the appellant is that there was confusion about admissibility of credit on common input services on trading activities during the relevant period due to conflicting views. In support, the appellant has referred to the order of the learned Commissioner(Appeals), Pune. 15. However, it is pertinent to note that the appellant in none of their communication addressed to the Department during the said period, have ever made such a plea that due to confusion on the issue of admissibility of credit on common input services, the credit was availed pending clarity on such issues, when the revenue from the activity of trading is almost equal to the manufacturing activity. 16. The Hon'ble Delhi High Court confronted with identical circumstances in the case of Lally Automobiles Pvt. Ltd. Vs. Commissioner (Adjudication), C. Ex [2018(17) GSTL 433 (Del.)] responding to the arguments of similar nature i.e invocation of extended period of limitation, observed as follows :- "18. As regards the method of calculation and invocation of extended period of penalty, the assessee's contentions again, to the Court's mind, are....
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....that it was not liable to service tax (since it did not include the amounts earned from that business, in its returns) meant that the assessee was aware of what it was doing. It cannot now take shelter under the plea that non-trading activity was expressly exempt from claiming credit, in 2011. That amendment made no difference, given that trading was never taxable under the Finance Act, 1994. In these circumstances, the Revenue was justified in invoking the extended period of limitation in this case. The said judgment has later been upheld by the Hon'ble Supreme Court reported in 2019(24) GSTL J115(SC). 17. The methodology of reversing proportionate credit attributable to trading activity during the relevant period has been considered as a reasonable method/option by the Hon'ble Madras High Court in Ruchika Global Interlinks Vs. CESTAT, Chennai [2017(5) GSTL 225 (Mad.)]. Their Lordships observed as follows :- 9. Clearly, during the period in issue, which we are told, i.e., 2006-2007 and 2007-2008, trading activity, which was one of the businesses, carried out by the appellant was not amenable to Service Tax. The amendment to Rule 2(e), as correctly argued by ....
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....r [2019-TIOL- 1229-H-MUM-CX] 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. It is observed as: "8. From the record it is undisputed that Appellant had not paid the service tax as the outward transportation under the category of GTA for the period from April, 2009 to December, 2011, this even though they had admittedly incurred expenses for the same. It is only during the course of EA 2000 audit that above non payment of service tax on the part of the Appellant was discovered by the revenue. This discovery on the part of the Revenue led the Appellant to deposit the service tax as well as interest thereon even before the show cause notice was issued by the revenue. In the above circumstances, even if the tax and the interest on the same was paid before the issue of notice, it is not open to the Appellant to take benefit of section 73 (3) of the Act as the non-payment of the service tax was on account of suppression with a malafide intention to evade payment of service tax. Thus in view of section 73(4) of the Act, the benefit of section 73 (3) of the Act, claimed by th....
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....enue 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. This principle has been laid down by the Hon'ble Madras High Court in the case of V.N.K. Menon & Co. Vs. CESTAT 2015 (323) ELT 524(Mad.). 21. In view of the above, I am of the opinion that 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. To this extent, I concur with the finding of the learned Member(Technical). MAJORITY ORDER In view of the majority order, it is held that the extended period is invocable. The demand confirmed along with interest is sustained. Appeal is disposed accordingly. (Pronounced in court on 16.08.2023) Sd/- (....