2023 (5) TMI 564 - AT - Central Excise

CENVAT Credit - use of input services in connection with the trading of the goods in addition to the manufacture - wrongful availment of CENVAT credit on trading activity - period April 2004 to March 2011 - levy of penalty under Rule 15(2) of CENVAT Credit Rules, 2004 - HELD THAT:- The issue involved had a chequered history of litigation. Different Benches of Tribunal have decided for or against the Revenue. Hon’ble Supreme Court in the case of LALLY AUTOMOBILES PRIVATE LIMITED VERSUS COMMISSIONER [2019 (6) TMI 414 - SC ORDER] has set to rest the controversy by deciding that CENVAT credit is not admissible on input services attributable to trading activity. This was affirmation of the Order passed in the same case by the Delhi Bench of Tribunal as well as the Hon’ble Delhi High Court.

The Tribunal in M/S LALLY AUTOMOBILES PVT LTD VERSUS CST, DELHI [2017 (12) TMI 27 - CESTAT NEW DELHI] has held that the appellants should not have availed credit for common input services which are used for taxable output service as well as trading activity, as it is imperative to identify and reverse that amount of credit attributable to the trading activity. We find no infirmity in the findings of the original authority on merit or on quantification.

The appellants have claimed that credit attributable to input services used in the manufacture of dutiable goods cleared by them was also sought to be denied. In terms of Rule 2(l), the input services used in the manufacture of dutiable goods cleared by them qualify to be called input services and therefore, credit cannot be denied on the same. Moreover, the appellants submit that the amount actually liable to be reversed is Rs.41,82,096.48/-. This requires to be checked and properly arrived at. For this reason, the case needs to be remanded back to the adjudicating authority.

Levy of penalty - HELD THAT:- Tribunal in the case of M/S LALLY AUTOMOBILES PVT LTD VERSUS CST, DELHI [2017 (12) TMI 27 - CESTAT NEW DELHI] observed that the appellants have no reason to avail credit on services which they are fully aware were being used for trading activity also; it is not open to the appellant to claim that they were under bona fide belief that the provisions of Rule 6(3) will not apply to this situation; as already noted, there is no ground for such belief - while imposition of equal penalty would be harsh, the omissions by the appellants can be mitigated by imposition of a suitable penalty. Therefore, the penalty reduced to about 10% of the penalties imposed.

The appeals are partly allowed by way of remand