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2023 (5) TMI 564 - AT - Central ExciseCENVAT 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
Issues Involved:
1. Admissibility of CENVAT credit on input services used for trading activities. 2. Quantification of the recoverable CENVAT credit. 3. Imposition of penalty under Rule 15 of CENVAT Credit Rules, 2004. Summary: Admissibility of CENVAT Credit on Input Services Used for Trading Activities: The appellants, engaged in manufacturing and trading of Control Panels equipment, availed CENVAT credit on input services used in both activities. The Department contended that input services used in trading do not qualify as "Input Services" under Rule 2(l) of CENVAT Credit Rules, 2004. The Tribunal held that prior to 01.04.2011, trading was not covered under the credit scheme, and thus the appellants should not have availed credit on input services used for trading. This was affirmed by the Supreme Court in Lally Automobiles Ltd. Vs Commissioner, 2019 (24) GSTL J115 (SC). Quantification of the Recoverable CENVAT Credit: The appellants argued that the Department wrongly included credit attributable to input services used in manufacturing. The Tribunal agreed that credit for input services used in manufacturing dutiable goods is admissible. The case was remanded to the adjudicating authority to verify and quantify the correct amount of CENVAT credit to be reversed, ensuring the credit attributable to manufacturing is excluded. Imposition of Penalty: The Tribunal found that the appellants should have been aware of the legal provisions and maintained separate accounts for trading and manufacturing activities. The Tribunal reduced the penalty to 10% of the originally imposed amounts due to the contradictory judgments on the issue by different Benches. The penalties were confirmed as follows: - E/298/2010: Rs. 7,00,000/- - E/920/2011: Rs. 2,00,000/- - E/185/2012: Rs. 4,00,000/- - E/55630/2013: Rs. 1,00,000/- Conclusion: The appeals were partly allowed by way of remand for quantification of the recoverable CENVAT credit. The demand for credit availed on input services used for trading was confirmed, while the credit for manufacturing was set aside. The penalties were reduced and confirmed as specified.
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