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M/s TFL Quinn India Pvt. Ltd. Versus CC & CE, Hyderabad-IV

2016 (6) TMI 230 - CESTAT HYDERABAD

Irregularly availing credit on trading activity - how to arrive at the quantum used for trading when no separate accounts are maintained - Held that:- The Commissioner(Appeals) has directed the lower authority to recompute the CENVAT credit as trading became exempted service only after 01/04/2011. Prior to 01/04/2011 the only method of computation available was the method in case of exempted services and original authority adopted such method.

The computation method taken by the appe .....

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alue/amount of credit of common input services attributable to trading activity falling within the normal period as per the method provided in Rule 6(3D)(c) of CENVAT Credit Rules as applicable to trading. Thus hold that the appellant is liable to reverse such amount and interest thereon.

The original authority has imposed equal amount of penalty. In the present case, as there is no suppression of facts or willful misstatement, the imposition of penalty is totally unjustified. Therefo .....

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vailing the facility of CENVAT credit on inputs, capital goods and input services. Some of the input services on which credit was availed were common to the manufacturing and trading activity. The period involved is from 2006-07 to 2010-11. The department entertained the view that trading activity is an exempted service. Thus as per Rule 6 of CENVAT Credit Rules, 2004, when common input/input services are used in exempted as well as dutiable final products/output services, the appellant has to m .....

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rity confirmed the demand, interest and imposed equal amount of penalty. The appellant was of the opinion that the liability to reverse credit as per their method of computation would be ₹ 2,74,122/- only. The appellant reversed an amount of ₹ 2,74,122/- towards demand and ₹ 1,29,221/- towards interest which was adjusted to the demand and the interest. The appellant challenged the issue in appeal and vide the order impugned herein the Commissioner(Appeals) upheld the demand of .....

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period involved in the case being prior to 01/04/2011, the activity of trading undertaken by appellant cannot be categorized as exempted service. The appellant utilized common inputs for trading activity as well as manufacture, on the belief that trading is not exempted service. That they were under bona fide belief that credit is admissible. Further that all along the department was fully aware that appellant was engaged in both manufacturing and trading activity. He contended that prior to 01 .....

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ended period is not sustainable. The learned counsel drew support from the judgment laid in Krishna Auto Sales Vs. CCE, Chandigarh [2015(40) STR 1121 (Tri. Del.)]. 4. In addition, the learned counsel submitted that the formula by which the department has arrived the demand/credit availed for trading activity as ₹ 4,76,651/- (including cess) is highly erroneous and against law. He explained that when the explanation was added w.e.f. 01/04/2011 clarifying that exempted services' includes .....

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er is more. Thus method of computation was also mentioned in the amendment brought forth. By following this computation method, the appellants would be liable to reverse only ₹ 2,74,122/- along with applicable interest. That the appellants fairly reversed this amount and the interest applicable thereto. The department has computed the value by adopting the method applicable to exempted services and not that of trading. The department has taken the entire trading turn over (i.e. difference .....

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dopted by the appellant is applicable only w.e.f. 01/04/2011. The computation was done by department adopting the method that existed then, though it did not include the case of trading. Further that the extended period has been rightly invoked as the appellant suppressed the fact that common input services were used for trading activity also. He pleaded that the appeal may be dismissed. 6. I have heard both sides. One of the vehement argument put forward on behalf of the appellant is that the d .....

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nts that the department was fully aware that appellant was engaged in trading activity also is not without force. Prior to 01/04/2011, different views existed whether trading could be categorized as exempted service or not. Rule 6 of CENVAT Credit Rules places an obligation to maintain separate accounts when manufacturer/service provider is engaged in production/providing exempted goods/exempted services also along with dutiable goods/taxable services. The department has taken the view that prio .....

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was engaged in trading activity also. The show-cause notice is issued after trading was brought under category of exempted service. It is clear that the issue was contentious, prior to 01/04/2011. In the present case, there is no evidence to establish that there was suppression of facts or willful misstatement on the part of appellants with intention to evade payment of duty. The Hon'ble Supreme Court in the case of Continental Foundation Vs. CCE, Chandigarh reported in 2007(216) ELT 177 (S .....

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able. Following the dictum laid in the above case, I hold that the part of demand which falls within the extended period is not sustainable. 7. A very small period falls within the normal period. Undisputedly the appellant has availed the input services like, telephone, internet, travels, courier and insurance both for manufacturing and trading activities also. Trading became exempted service only w.e.f. 01/04/2011. It cannot be considered even as a service prior to that. The appellant cannot ta .....

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