CENVAT Credit availed on trading activity is not admissible

Dorma India Pvt. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)

CESTAT Chennai held that cenvat credit availed on trading activity is not admissible, accordingly, cenvat credit admissible on common input services needs to be reversed by invoking the extended period of limitation.

Facts-

The appellant is engaged in manufacture of “Automatic Door Operators and Door Closures” and parts falling under Chapter Sub-heading 83 of CETA, 1985. The appellant was also engaged in trading activity of imported as well as locally procured components and inputs.

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 before the Tribunal.

Conclusion- The Hon’ble Delhi High Court in Lally Automobiles Pvt. Ltd.’s case categorically held that cenvat credit availed on trading activity is not admissible and extended period is invocable. The said judgment has been upheld by the Hon’ble Supreme Court.

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.

Held 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.

FULL TEXT OF THE CESTAT CHENNAI ORDER

Brief facts are that the appellant is engaged in manufacture of “Automatic Door Operators and Door Closures” and parts falling under Chapter Sub-heading 83 of CETA, 1985. They are registered with the Central Excise Department and also with Service Tax Department for the taxable services rendered by them. They have been availing CENVAT credit of duty paid on the inputs and input services procured by them locally as well as imported. The appellant was also engaged in trading activity of imported as well as locally procured 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 before the Tribunal.

3. The learned counsel Shri N. Viswanathan appeared and argued for the appellant. He submitted that with effect from 1.4.2011, the CENVAT Credit Rules, 2004 was amended so as to include ‘trading’ as an exempted service. Prior to such amendment, trading was not considered as an exempted service. The appellant was under bonafide belief that as the input services were used commonly for trading as well as manufacturing activity the credit is eligible. There was no intention to commit any fraud, suppression of facts with intent to evade payment of duty. The department has issued the Show Cause Notice invoking extended period alleging that the appellant has suppressed facts with intention to evade payment of duty which is utterly false and baseless. He put forth detailed argument raising the ground of limitation.

4. He submitted that the accounts and records of the appellant were regularly audited by the officers of the department at periodic intervals and the department was very well aware that the appellant was engaged in trading activity. During the audit conducted in the year 2009, an objection was raised on the availment of input service credit of services used for trading as well as manufacturing activity. The appellant had then given reply to the said objection and as an abundant caution so as to show their bonafide had immediately worked out the proportionate common input service credit attributable to trading based on the value of goods traded for the year 2008 – 09 and accordingly paid Rs.35,84,540/- along with interest of Rs.2,25,194/-, The said amount was paid under protest on 15.4.2009. Further from 1.4.2009 onwards, they started availing proportionate common credit attributable to their manufacturing activity only. The communication dated 4.5.2009 was sent to them by the Range Superintendent with regard to the audit objections which would show that department was aware of the credit availed by appellant. The appellant had replied to such objection along with details of the input tax credit availed by them. In spite of having full knowledge about the credit availed in regard to trading activity, the present Show Cause Notice has been issued for the period March 2006 to February 2011 invoking extended period and alleging fraud and suppression with intent to evade duty.

5. He submitted that the demand raised invoking 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 decisions as to whether credit can be availed on input services used for trading and the appellant was under belief that as trading was done in connection with their manufacturing activity, the credit is eligible.

7. The learned counsel submitted that the quantification of demand is without any basis. When the audit had objected, the appellant had reversed the credit after calculating the amount attributable to the trading activity for the year 2008 – 09. They have thereafter availed proportionate credit only for subsequent periods 2009 – 10 and 2010 – 11. However, in the notice, the demand is made for the entire period from March 2006 to February 2011 without considering the proportionate credit reversed by the appellant or the non-availment of credit for the subsequent period from 2009 till 2011.

8. It is further argued by the learned counsel that the quantification of demand is erroneous not only for the reason that the proportionate credit reversed by the appellant was not considered but also for the fact that the department has not considered the application of eligibility of credit in terms of Rule 6(5) of CENVAT Credit Rules. As per this provision, the appellant is eligible to avail credit on certain services though they are used commonly for exempted and taxable services. Further, the demand has been made not on the basis of the proportionate credit in regard to trading but on the basis of the entire input credit availed which is against the provisions of law. He argued that the quantification of demand is totally incorrect and not sustainable.

9. The learned counsel relied upon the decision of the Hon’ble Supreme Court in the case of Jaiprakash Industries Ltd. Vs. CCE, Chandigarh reported in 2002 (146) ELT 481 (SC) to argue that when there are divergent views of different High Courts, the extended period cannot be invoked when there is no evidence for fraud, collusion or willful mis-statement. The decision of the Hon’ble Supreme Court in the case of CCE, Jalandhar Vs. Royal Enterprises reported in 2016 (337) ELT 482 (SC) was relied to argue that unless there is evidence for deliberate attempt to evade duty, the invocation of extended period is not applicable. The learned counsel relied upon the decision of the Tribunal in the case of Medisray Laboratories Pvt. Ltd. Vs. CGST, Kolhapur reported in 2019 (369) ELT 717 (Tri. Mum.) wherein it 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, Chennal 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 invokable.

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 error would not have come to light but for the verification done by the department. Hence the demand raised invoking the extended period is legal and proper. She prayed that the appeal may be dismissed.

12. Heard both sides.

13. The learned counsel for appellant has stressed his arguments on limitation. His first contention is that during the audit in the year 2009, an objection was raised by the audit party that the appellant has availed ineligible credit on services used for trading activity. The appellant then paid an amount of Rs.35,84,540/- on 15.4.2009 along with interest of Rs.2,25,194/-. From 1.4.2009 onwards they have stopped taking credit in regard to trading activity and they were availing credit of common input service that is attributable to their manufacturing activity only. In page 85 of the appeal memo, a letter dated 15.4.2009 issued by the appellant to the Superintendent of Central Excise, Internal Audit Group is seen enclosed. It shows endorsement of the Superintendent on the same day i.e. 15.4.2009. This letter is reply to the objection raised by audit party with regard to the availment of input credit in regard to trading activity. The relevant part is as under:-

“Please refer to your objection with regard to the availment of input service tax by us even while engaged in the trading activities and the further discussions you had with the undersigned advising orally to reverse the proportionate possible Service Tax Credit availed in respect of our trading activity, for the periods 2005 – 2006, 2006 – 200Z 2007- 2008, 2008 – 2009.

**** ***** ****

We however state that since the issue involved is one being legally debatable, we have decided to remit an amount of Rs.35,84,540/-(Rupees thirty five lakhs eight four thousand five hundred forty only) being the proportionate possible service tax utilized for rendering the trading activity UNDER PROTEST as per the formula prescribed under rule 6 of the CENVA T Credit Rules, as advised by your goodself without prejudice to our submissions on merits recorded herein before. We however submit that since the facts of the case clearly establish no malafide we cannot be subject to the proviso to Sec. 11A of the Act read with Rule 14 of the CENVA T Credit Rules, we are restricting the payment only for the normal period that is for the period 2008 – 2009. We further submit that our act 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 Show Cause Notice has been issued only on 1.4.2011 invoking the extended period. Though it is alleged that the appellant has indulged in suppression of facts with intent to evade duty, there is no positive evidence adduced by the department to show that there has been any suppression of facts. A vague allegation cannot take the place of positive evidence. The allegation of suppression of facts with intent to evade payment of duty being a serious one, the department has to furnish evidence to show that the appellant has indulged in some sort of positive act of suppression. Such evidence is lacking in the present case. In fact, there has been full cooperation by the appellant in furnishing necessary documents / details and also by making payment of amount when they were intimated that they have wrongly availed the credit.

16. The Hon’ble jurisdictional High Court in the case of Shriram Value Services Pvt. Ltd. (supra) has considered a similar issue wherein the demand was in respect of credit availed on trading activity. The Hon’ble High Court held that extended period of limitation is not invocable as they were conflicting decisions during the relevant period. The relevant portion of the judgment is extracted hereunder:-

5. The Learned Tribunal, in the order impugned in the present Appeal, has held as under ..-

“5 The main contention put forward by the appellant is on the ground of limitation. The period involved is from April 2009 to March 2011 whereas the show cause notices have been issued invoking the extended period of limitation. The Ld. Counsel for the appellant has submitted that there was conflicting decisions during the relevant period holding that trading activity is an exempted service and is eligible for credit. Indeed, the position prior to 1-4-2011 was doubtful and there were decisions in favour of assessee as well as Revenue. Only after 1-4-2011, the position was settled by adding Explanation to the definition of exempted services which made trading activity to be a deemed exempted service. It is very much clear from the facts of the case that the appellant have been maintaining separate records for the common inputs used in trading and taxable output service. This itself brings out the bona fide belief of the appellant that they were under the impression that their activity is an exempted service and would be able to 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 avallment 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 time, viz, from April 2009 to March 2011, the Assessee was, obviously, under bona fide belief in view of the conflicting decisions of the Tribunals during that period and taking the trading activity as Exempted Services, availed the CENVA T Credit which is sought to be reversed and recovered by the Department invoking the extended period of limitation. Such a bona fide belief cannot be held to be done with ulterior purpose for evading the Duty and therefore, the extended period of limitation would not be available to the Revenue Authority in view of the aforesaid decision rendered by the Hon’ble Supreme Court.

7. The judgments relied upon by the Learned Counsel for the Revenue viz., Gujarat High Court’s decision in CCE V. Neminath Fabrics Pvt. Ltd. as well as decision of a Division Bench of this Court in the case of M/s. King Bell Apparels (supra) are not applicable to the facts of the present case as even without attributing any knowledge to the Revenue Authority about such dispute, the fact remains that in view of the Explanation inserted later on in favour of the Assessee for the period prior to 1-4-2011, the Revenue Authority cannot be permitted to reverse such CENVAT Credit and recover the Duty, alleged to have been evaded by the Assessee, invoking the extended period of limitation under Section 11A of the Act.

8. Therefore, the controversy stands covered by the Supreme Court decision in Kolety Gum Industries case (supra), relied upon by the Learned Counsel for the Assessee and the present Appeal of Revenue is found to be devoid of any merit and the same is liable to be dismissed. Accordingly, it is dismissed. No costs.”

17. The Hon’ble Supreme Court in the case of Jaiprakash Industries Ltd. (supra) has observed as under:-

“8. In this case, there was a divergent view of the various High Courts whether crushing of bigger stones or boulders into smaller pieces amounts to manufacture. In view of the divergent views, of the various High Courts, there was a bona fide doubt as to whether or not such an activity amounted to manufacture. This being the position, it cannot be said that merely because the Appellants did not take out a licence and did not pay the duty the provisions of Section 11A got attracted. There is no evidence or proof that the licence was not taken out and/or duty not paid on account of any fraud, 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 were known to the Revenue authorities for quite some time. As early as 1992, the appellant’s contracts, sales invoices etc. relating to his work for Railway Coach Factory had been summoned and obtained by the Revenue authorities. All these contracts indicated issue of raw materials by the Railway Coach Factory to the appellant upon the appellant executing bank guarantee. The orders for fabricating bottom side wall sheet was also on the same basis. Order number were being indicated in the invoices under which the goods were cleared. It would appear that a mere look at the rates for fabrication should have alerted the excise authorities to the fact that such a low rate (Rs. 590/- per set etc.) could not include the cost of raw materials. Be that as it may, this is not a case where a charge of suppression of facts with intent to evade payment of duty could reasonably be made. If reasonable care had been taken by the Revenue authorities to scrutinize the contracts and other documents produced, they would have known in time that fabrication charges alone was being treated as assessable value. Maybe, Revenue was also of the opinion that fabrication charges alone was liable to duty. In either case, fault is not of the appellant. Relevant facts had been disclosed.”

3. This Court, in the case of Collector of Central Excise v. Chemphar Drugs & Liniments [1989 (40) E.L.T. 276 (S.C.)J, has held that in order to make the payment for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to Section 11A of the Act it has to be established that the duty of excise has not been paid or levied or short-paid or short-levied or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provisions of the Act or Rules made thereunder, with intent to evade payment of duty. It was observed :

a…… Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before (sic beyond) the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any 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 six months as the Tribunal did. We are, therefore, of the opinion that the Tribunal was right in its conclusion. The appeal therefore fails and is accordingly dismissed”

4. Similarly, in the case of Pushpam Pharmaceuticals Company v. Collector of Central Excise, Bombay [1995 (78) E.L.T 401 (S.C.)1, it was held that mere omission to disclose the correct information would not amount to suppression of facts unless there was a deliberate attempt made to escape the payment of duty. Where facts are known to both the parties it cannot be held that there was suppression of facts. It was observed in Para 4 as follows .•

“4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”

5. We agree with the view taken by the Tribunal that there was no suppression of facts on the part of the respondent-assessee and the department was not entitled to invoke the extended period of limitation. Accordingly, this appeal is dismissed. No costs.

19. From the facts and evidence placed before us as well as following the ratio laid in the above judgments, we have no hesitation to conclude that there are no grounds to invoke the extended period of limitation. However, part of the demand would fall within the normal period. 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 quantification 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 the adjudicating authority for the limited purpose of quantifying the demand for the normal period. All the penalties imposed are set aside. The appeal is partly allowed in the above terms with consequential benefits, if any.

(Pronounced in open court on 27-09-2023)

(SULEKHA BEEVI C.S.)
Member (Judicial)

(SANJIV SRIVASTAVA)
Member (Technical)

Per : Sanjiv Srivastava

1. I have gone through the order prepared by learned Member (Judicial) and express my full agreement with the issues decided in respect of merit of the case. She has held that during the period covered by the show cause notice and impugned order, the appellant was required to reverse the cenvat credit availed by them in respect of the input services used by them towards trading activities. However, I find it difficult to persuade myself with regard to the findings recorded in respect of the limitation.

2. On the issue of limitation, Commissioner has in paragraph 26 of the impugned order recorded as follows :

“26. The next issue for consideration is whether the demand is time barred as contended by the Noticee.I find that an Offence case had also been registered against the assessee vide OR No.02/2010-11 dated 3.05.2010 for availing & utilizing ineligible Cenvat credit of Service Tax paid on the common input service attributable to Trading Activity for the period from 03/2006 to 02/2011. The noticee contends that various facts and documentary evidences brought in their reply clearly showed knowledge on the part of officers with regard to their availing and utilizing the input service tax credit on common services and the matter purely related to the question of interpretation. It is seen that the assessee has been availing Cenvat credit of Service tax from March 2006 onwards although the provisions of allowing credit of service tax on input services came into force from 10.09.2004 onwards. Though the assessee has knowledge of availing credit on input services which are also utilised for trading activity, they did not make any effort to workout and payback the proportionate credit till the lapse was pointed out by Audit and subsequently got thoroughly investigated by the Officers of the Headquarters Preventive unit. Under self assessment scheme, the burden of proof regarding the admissibility of the CENVAT credit is placed upon the manufacturer 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 readwith 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 case, it is required to be determined whether the case is fit for invocation of extended period of limitation and the demand needs to be limited in the normal period. As this is a question of fact, there cannot be any binding precedence determining the facts in this case. Hence the reliance placed on various decisions cannot be justified because precedence can be on question of law and not on the question of determining of facts.

3. Examining the facts of the case, I find that as per sub rule (3) and (3A) of Rule 6 in terms of which the appellant is required to make the reversal of the cenvat credit availed by them on the common input services provide a procedure for making (i) a declaration to that effect (ii) reversal of the credit on provisional basis (iii) finalization of the reversals on the yearly basis by the prescribed date. For the period in dispute, the appellant has not shown any evidence by which it can be said that they have made any such declaration or reversals prescribed. Accordingly, in my view, by not following the said procedure, they have suppressed the material facts from the Department at the relevant time.

4. In para-14 at page 8 of the order, learned Member (Judicial) has referred to letter dated 01.11.2006 vide which Revenue has sought certain information from the appellants. It appears that the text of the letter has been modified with the remark stating “Details of Trading, Service Tax input credits taken, B/S for PY were given to IA Team. IA during 2006”. The scanned copy of letter dated 01.11.2006 is as below :

The said remark which is in pen is pasted on the original letter which is the standard format issued by the Internal Audit of the Revenue. This letter was responded by the appellants by letter dated 17.11.2006, 21.11.2006, 16.01.2007. This also does not show that the details in respect of trading services vis-à-vis Rule 6 (3) and (3A) were furnished. There is another letter dated 23.07.2007 of the Department seeking certain details. However, this letter also do not specify that these details were ever made available to the Revenue.

5. Only by the letter dated 21.07.2008 it appears after visit of the audit party, it was noted that there were also trading activities on certain goods in the manufacturing premises and accordingly, the details were called for the years 2003-04, 2004-05, 2005-06, 2006­07 and 2007-08. 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 periodi.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,
Sub : Intimation with regard to payment of Excise Duty on Certain Removals — Reg.

Ref :i) Visit of HQ Preventive Team to our Premises during June 2009.

ii) Visit of Audit Team on April 2009.

This is with reference to the above, we hereby give below the details of out DUTY Payment along with Interest on the following :

1.	Reversal of Input Credit taken on the Free Replacement of Materials to the Customers	Payment made for the years : 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009	Actual Amount Duty Reversed Rs.11,22,655/-	Interest Paid on such Reversal Rs.393,5 94	Challan no:00021 datedJuly 07,2009
2.	Duty Payment on Removals to our DORMA Application / Display Centre	July 2008 to March 2009	Actual Amount of Duty Reversed Rs.241,335	Interest Paid on such reversal Rs.31,757/-	Challan No:00022 dated July 06, 2009
3.	Duty Payment on Aluminum Scrap Sales	Payment made for the years 2006-2007 2007-2008 2008-2009	Amount of Duty paid Rs.23,917/-	Interest Paid on such Duty Rs.5,340/-	Challan No: 00023 dated July 07,2009

We have remitted / reversed totally an amount of Rs.1,18,597/- being the amount payable by us, including interest, on the above activities.

The copies of the challans are attached herewith for your reference & records.

In this connection, please note the following :

1. We have computed & reversed the actual duty credit taken / availed by us on the removals made by us towards the Defective Replacement of materials.

2. We have been remitting / reversing the duty regularly on the removals made by us towards dispatch of materials to our DORMA Application Centre for the earlier years. (2004-2005, 2005-2006, 2006-2007, 2007-2008)

3. There are No (Duty availed) Aluminum Scrap Sales during the years prior to 2006-2007.

We have demonstrated & given the details to the department on some of the As SUCH removals made during the year 2008-2009, that there is no revenue loss to the Government. A copy of the same is also attached herewith for your reference.

In case you need any further information, please feel free to revert back to us.

Thank you,

Yours truly,
For DORMA India Private Limited.

Sd/
N. Krishnan
Chief Financial Officer

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 by the appellant during the relevant period on account of contrary decisions needs to be established. In the present case, no such evidence has been put forth.

7. Member (Judicial) has referred to the decision of Hon’ble
Madras High Court in the case of Shriram Value Services [2019 (368) ELT 928 (Mad.)] wherein it has been held that extended period cannot be invoked in the present case when there were conflicting decisions. However Hon’ble High Court has in case of King Bell Apparel [2019 (365) E.L.T. 681 (Mad.)] relying on decision of Hon’ble Gujarat High Court in case of Neminath Fabrics [2010 (256) E.L.T. 369 (Guj.)] held as follows:

17. Next we move on to the question as to whether the extended period of limitation could have been invoked. This very issue has been answered in the decision in Neminath Fabrics Pvt. Ltd. (supra) by the High Court of Gujarat. The question which was framed for consideration was ‘whether the Tribunal was justified in importing the concept of knowledge in the provisions of Section 11A of the Central Excise Act, 1944 read with sub-section (1) and the proviso thereto’.

18. Learned Counsel for the assessee before us contended that the department had knowledge of the entire matter as early as in December, 2003, when they had made an inspection of the factory. However, show cause notice was issued only in the year 2007 and the extended period could not have been invoked in the instant case. The argument advanced by the Learned Counsel for the assessee before us is identical to that of the argument which was advanced before the Gujarat High Court in Neminath Fabrics Pvt. Ltd., supra. The Court repelled the contentions on the following lines :

“10. Section 11A of the Central Excise Act, 1944 insofar as the same is relevant for the present purpose reads thus :

11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. — (1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder, 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 excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(ii) relevant date means,-

(a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid –

(A) where under the rules made under this Act a periodical return, showing particulars of the duty paid on the excisable goods removed during the period to which the said return relates, is to be filed by a manufacturer or a producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed;

(B) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;

(C) in any other case, the date on which the duty is to be paid under this Act or the rules made thereunder;

(b) in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;

(c) in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund.

11. A plain reading of sub-section (1) of Section 11A of the Act indicates that the provision is applicable in a case where any duty of excise has either not been levied/paid or has been short levied/short paid, or wrongly refunded, regardless of the fact that such non levy etc. is on the basis of any approval, acceptance or assessment relating to the rate of duty or valuation under any of the provisions of the Act or Rules thereunder and at that stage it would be open to the Central Excise Officer, in exercise of his discretion to serve the show cause notice on the person chargeable to such duty within one year from the relevant date.

12. The Proviso under the said sub-section stipulates that in case of such non-levy, etc. of duty which is by reason of fraud, collusion, or any mis-statement or suppression of facts, or contravention of any provisions of the Act or the rules made thereunder, the provisions of sub-section (1) of section 11A of the Act shall have effect as if the words one year have been substituted by the words five years.

13. The Explanation which follows stipulates that where service of notice has been stayed by an order of a Court, the period 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 where under 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 stated as to service of notice shall be excluded in computing the aforesaid period of one year or five years as the case may be.

16. The termini from which the period of one year or five years has to be computed is the relevant date which has been defined in sub­section (3)(ii) of Section 11A of the Act. A plain reading of the said definition shows that the concept of knowledge by the departmental authority is entirely absent. Hence, if one imports such concept in sub-section (1) of Section 11A of the Act or the proviso thereunder it would tantamount to rewriting the statutory provision and no canon of interpretation permits such an exercise by any Court. If it is not open to the superior court to either add or substitute words in a statute such right cannot be available to a statutory Tribunal.

17. The proviso cannot be read to mean that because there is knowledge the suppression which stands established disappears. Similarly the concept of reasonable period of limitation which is sought to be read into the provision by some of the orders of the Tribunal also cannot be permitted in law when the statute itself has provided for a fixed period of limitation. It is equally well-settled that it is not open to the Court while reading a provision to either rewrite the period of limitation or curtail the prescribed period of limitation.

18. The Proviso comes into play only when suppression etc. is established or stands admitted. It would differ from a case where fraud, etc. are merely alleged and are disputed by an assessee. Hence, by no stretch of imagination the concept of knowledge can be read into the provisions because that would tantamount to rendering the defined term relevant date nugatory and such an interpretation is not permissible.

19. The language employed in the proviso to sub-section (1) of section 11A, is clear and unambiguous and makes it abundantly clear that moment there is non-levy or short-levy etc. of central excise duty with intention to evade payment of duty for any of the reasons specified thereunder, the proviso would come into operation and the period of limitation would stand extended from one year to five years. This is the only requirement of the provision. Once it is found that the ingredients of the proviso are satisfied, all that has to be seen as to what is the relevant date and as to whether the show 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 sub­section (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 not be obliterated.”

19. As pointed out in the above referred decision, the proviso comes into play only when suppression is established or stands admitted and it would differ from a case where fraud, etc., are merely alleged or is disputed by the assessee and therefore, the concept of knowledge cannot be read into the provisos because that would amount to rendering the term “relevant date” negatory and such interpretation is not permissible. The contention that once knowledge has been acquired by the department, there is no suppression and the ordinary statutory period of limitation prescribed under sub-section (1) of Section 11 would be applicable was rejected as a fallacious argument inasmuch as once the suppression is admitted, merely because the department acquires knowledge of the irregularity, the suppression would not be obliterated.

20. In the instant case, it has been established that there has been suppression, there has been clandestine removal of excisable goods without payment of excise duty, the assessee having collected Excise duty from the customers did not remit it to the department and the assessee did not obtain registration from the department nor maintained any records and obtained registration under the provisions of the Act only on 16-5-2003. Thus, these facts would clearly establish that the extended period of limitation was in vocable in the assessee’s case.”

8. Hon’ble Allahabad High Court has in case of Rathi Steel and Power [2015 (321) E.L.T. 200 (All.)] distinguishing the other decisions relied upon by the Member (Judicial) in her order held as follows:

“26. We have only to examine as to whether there has been suppression of facts on the part of the assessee in the matter of such wrongful availment of Cenvat credit which was legally not permissible or not, so as to see as to whether extended period of limitation would be available to the department or not.

27. It would be worthwhile to reproduce the finding recorded by the Commissioner, Customs, Central Excise & Service Tax, Ghaziabad in paragraph no. 4.1.7, under his order dated 19th November, 2011, on the said aspect of the matter after considering the explanation furnished by the assessee to the show cause notice. The para reads as follows :

“4.1.7 They submitted that since the admissibility of credit on steel items has been 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 assessee himself before the Commissioner, as has been noticed in paragraph no. 4.1.7 quoted herein above, we find that the assessee had tried to suggest that the law laid down in the case of Vandana Global Ltd. (supra) was not applicable in the facts of his case as none of the items were used for supporting structure of foundation and therefore, Cenvat credit could not be denied.

31. It is apparently clear that the plea which has now been sought to be raised before the Court that the assessee had bona fide doubts with regard to the availability of Cenvat credit on the items in question and that the law in that regard has been settled by the Tribunal in the case of Vandana Global Ltd. (supra) is clearly an afterthought and attempt to improve upon his explanation, as was furnished before the Commissioner wherein the assessee had admitted that steel items had not been used for supporting structure of foundation in any manner.

32. We further find that under Rules, 2004, a burden is cast upon the manufacturer to ensure that Cenvat credit is correctly claimed by them and proper records are maintained in that regard.

33. The assessee, in response to the show cause notice had stated that there is no provision in Central Excise Law to disclose the details of the credit or to submit the duty paying documents, which in our opinion is false and an attempt to deliberately contravene the provisions of the Act, 1944 and the rules made thereunder with an intent to evade the duty.

34. In our opinion, the facts of the present case clearly suggest wilful suppression of material facts by the assessee as well as contravention of the provisions of the Act and rules framed thereunder with an intent to evade the demand of duty as would be covered by Clauses IV and V of Section 11A(1) of the Act, 1944. Therefore, the invocation of the extended period of limitation in the facts of the present case is fully justified.

35. Reference may be had to the judgment of the Apex Court in the case of Usha Rectifier Corporation (I) Ltd. (supra), whereunder the Apex Court has held that where the assessee had not disclosed the fact of manufacturing of the goods to the department and the knowledge of manufacture came to be acquired by the department only subsequently and in view of non-disclosure of such information by the assessee and suppression of relevant 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 themselves. It is in this background that the Court had gone to hold that there had been no deliberate suppression.

39. Similarly the judgment of the Apex Court in the case of Jai Prakash Industries Ltd. (supra) relied upon by the learned counsel for the assessee is also clearly distinguishable in the facts of the present case. In the said case, there were divergent views of the various High Courts, the issue as to whether crushing of bigger stones or boulders into smaller pieces amounts to manufacture. In these facts, it was held that if the assessee had not taken licence or he did not pay the duty, the extended period of limitation could not be invoked.

40. For the reasons recorded above, we find that the Tribunal under the order impugned is not justified in recording a finding that the extended period of limitation cannot be invoked, inasmuch as from what has been recorded by us herein above, it is crystal clear that there has been suppression of material fact as well as contravention of the provisions of the Act, 1944 and the rules framed thereunder at the hands of the assessee with an intent to evade the demand of excise duty. Therefore, extended period of limitation had rightly been invoked in the facts of the present case.”

9. In view of the above discussions, I am not able to persuade myself to concur with the findings recorded to the effect that extended period of limitation shall not be applicable. Even otherwise, in my view, in case of any credit which is not admissible and allowed to the appellant for the reason of limitation in making the payment is contrary to the principles of trust and equanimity. It creates market imbalance as an honest tax payer suffers on account of undue benefits accruing to the dishonest one. It is settled principle in law that no one should be allowed to take the undue benefits of his own wrongs.

10.0 In view of the above, I respectfully hold that extended period as held by the Commissioner should be invokable in the present case for demanding reversal of cenvat credit in respect of the trading activities

(SANJIV SRIVASTAVA)
Member (Technical)

DIFFERENCE OF OPINION

In view of the separate order recorded by brother Member (Technical), the following questions arise for resolution of the difference of opinion between the members

(i) Whether part 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)

(SULEKHA BEEVI C.S.)
Member (Judicial)

(SANJIV SRIVASTAVA)
Member (Technical)

Per: Dr. D.M. MISRA

1. 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 their imported items. Alleging that they have wrongly availed credit on common input services attributable to trading activity during the period March 2006 to February 2011, show-cause notice was issued to them on 01.4.2011 for recovery of the inadmissible credit.

4. There is no dispute about the non-admissibility of credit on trading activity during the said period. This, in principle, has been accepted by the Appellant. The issue for determination is: whether the demand for the period 2006-07 & 2007-08 is barred by limitation as the Appellant reversed proportionate credit for the period 2008-09 and thereafter, as the appellant claimed to have stopped the availment after 01/04/2009..

5. It is brought on record that pursuant to the visit of Audit in March 2019 and on raising objection on the availment of credit on trading activity, the Appellant furnished the details of credit availed on common input services during the period 2005-06, 2006-07, 2007-08 & 2008-09, and reversed the cenvat credit amounting to Rs.35,84,540/-with interest of Rs.2,25,194/-for the period 2008-09 attributable to trading activity submitting that the same falls within the normal period, but resisted payment for the earlier period on the ground of limitation. After 01.04.2009, the appellant claimed to have stopped availing credit attributable to trading activity. The Revenue made an attempt to negate the said claim of the Appellant stating that after 01.4.2009 excess
credit was availed on common input service referring to the report dated 07.11.2014 of the Dy. Commissioner, filed during the course of hearing of their pre-deposit waiver application.

6. The Ld. Member(Judicial) has held that the demand for the extended period is unsustainable, and be restricted to normal period, whereas the Ld. Member(Technical) is of the view that the extended period of limitation has rightly invoked in confirming the demand.

7. In response to the allegation of suppression, the main defence of the appellant rests on the plea that they have been filing annual ER-4 returns and in constant correspondence with the department from time to time, in connection with conduct of Audit of their Unit, during the said period, hence in the process disclosed all relevant facts including their activity of trading to the department; thus, it was within the knowledge of the department about their activity of trading 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 that the Department was aware that the appellant was availing credit in respect of common input services used for trading. In absence of positive evidence to show that there has been suppression of facts and following the ratio of the jurisdictional High Court in the case of Shriram Value Services Pvt. Ltd. [2019(368) ELT 928 (Mad.)] and the judgments of Hon’ble Supreme Court in the cases of Jaiprakash Industries Ltd. [2002(146) ELT 481 (SC)] and Royal Enterprises [2016(337) ELT 482 (SC)], held that there is no ground for invoking extended period of limitation and demand be restricted to normal period.

10. Learned Member(Technical), on the other hand had observed that issue of limitation is in a particular case is a question of fact; hence there is no binding precedent on the subject. He has proceeded in observing that the appellant has failed to adhere/ comply the provisions of sub-rule (3) and sub-rule (3A) of Rule 6 of the Cenvat Credit Rules, 2004 to reverse cenvat credit on common input services by making necessary declaration to the department. Further analysing the letter dt. 01.11.2006, the learned Member(Technical) expressed his doubt about the remark “Details of trading, service tax input credits taken, B/S for PY were given to IA Team. IA during 2006” observing that the said remark is in pen pasted on the original letter which is the standard format issued by the Internal Audit of the Revenue. Also, he has referred to the letters dt. 17.11.2006, 21.11.2006 and 16.01.2007, all these letters also do not disclose Rule 6(3) and Rule 6(3A) compliance by the appellant; only after 21.07.2008, it came to the knowledge of the Department that they were carrying out trading activities from the manufacturing premises; accordingly the details were called for scrutinizing the data pertaining to the past period. He has observed that the appellants failed to produce any document on record to show that these facts were made known to the Department; no such trading activities have been shown in the ER1 returns during the material period. He has held that after introduction of self-assessment, the responsibility rests on the assessee for making true and fair declaration about availment of cenvat credit and its utilization. Also, the learned Member(Technical) observed that not a single judgment for the relevant period has been produced by the appellant indicating 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(AII)], 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 records by the Department; it rests mainly on the letter dt. 01.11.2006 written by Superintendent of Central Excise, Internal Audit (Group-VIII) to the appellant for production of list of documents. In that letter, a remark was made stating that “Details of Trading, Service Tax input credits taken, B/S for PY were given to IA Team. IA during 2006”. The contents of the said letter reveal that various documents, particulars were sought for by the Department for audit of their records. The remarks purported to have been made by the Appellant visibly supper-imposed on the letter; hence the authenticity is not clear and also not free from doubt about the time of such remark. The genuineness of the said remark also throws doubt when subsequent correspondence are examined. In response to the said letter dt. 17/11/2006, the appellant enclosed 10 documents requested through letter dt. 01.11.2006; however, the said letter does not bear the remark seems to be supper-imposed in letter 01.11.2006. Also, another letter was written on 21.11.2006, still the similar remark is missing. Further, the letter dt. 23.07.2007 also do not carry any such remarks.

12. The letter dt. 21.07.2008 addressed by the Superintendent, Range-I enquiring about the activity of trading after a visit to their unit and requested certain information from the appellant reveals the said activity came to the knowledge of the department. The said letter was responded on 21.07.2008 by the appellant answering to the queries raised by the Range Superintendent. A reading of the said letter does not disclose that earlier the appellant had clearly and categorically informed the Department about undertaking of trading activity along with the manufacturing activities. Reading these letters in juxtaposition, it can fairly be inferred that the trading activity by the Appellant have not been disclosed in clear terms but came to the knowledge of the Department only after a visit of the in-charge Range Superintendent to their premises on 21.07.2008.

13. There is no letter nor any communication addressed by the appellant to the Department disclosing the activity of trading before that date. In the returns filed with the department it is not disclosed that the CENVAT credit has been availed on common input services and a portion of it was attributable to trading activity, which is approximately half of their total 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 groundless. The assessee concededly did not maintain regular separate accounts in respect of non-service tax leviable activities. Therefore, the adjudicating authority adopted the method of proportionate turnover based attribution to the assessee’s liability:

“I find that it was clear in 2008 itself that no Cenvat Credit is available for services used for trading as decided by Hon’ble CESTAT in the Metro shoes case. The noticee has availed the Cenvat Credit used for exempted services namely trading without reversing the proportionate credit. They have never informed the department about taking the wrong credit. This would have been undetected if the facts were not noticed during audit. M/s. Lally Automobiles Private Ltd. have failed to inform the department that they are not maintaining the separate records for input services used for taxable and exempted services. It is already noted that the law requires an assessee to maintain separate records of Cenvat credit received on taxable or non-taxable services. In case the separate records are not maintained, the Cenvat credit is to be reversed as per Rule 6(3) of the Cenvat Credit Rules, 2004;. I find that : M/s. Lally Automobiles Private Ltd. have not reversed the same by suppression of material facts. The excess credit availed utilized by them is liable to be recovered in terms of Rule 14 of Cenvat Credit Rules, 2004 read with proviso to Section 73(1) of Finance Act, 1994.”

19. This Court is of opinion that the lack of any method in the rules in such cases, would only mean that a reasonable and logical principle should be applied, not concededly that what should and could not be claimed as input credit, (but was in fact so claimed) ought to be “left alone” because of the composite nature of the assessee’s business. While any assessee has a right to organize its business in the most convenient and efficient manner, it cannot claim that that such organization is so structured that its tax liabilities cannot be clearly discerned. In this case, the adjudicating authority adopted the proportionate percentage to the turnover method approach, which in this Court’s opinion, is reasonable.

20. This Court is also of the opinion that the invocation of the extended period of limitation was warranted in the circumstances of the case. Being conscious of its trading activity and 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 Mr. A.P. Srinivas, only stated the obvious that there was no liability to pay Service Tax of trading activity, during the relevant period has been accepted by Mr. Jayachandran. The argument, though, of Mr. Jayachandran is that, since, the formula of apportionment provided in Rule 6(3)(c) is applicable to exempted service, the same can only apply post 1-4-2011, as a clarification was made only on that day onwards.

10. To our minds, such a submission cannot be accepted. If, the appellant has accepted before us that he was not paying Service Tax on an activity, then the credit of services vis-à-vis input services could only be taken on a pro rata basis, as per the formula stipulated in Rule 6(3)(c), as it then obtained at the relevant point in time.

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……

…….

11. Having regard to the rule, position and given the admitted fact that no separate accounts were maintained by the appellant, with regard to the taxable and non-taxable services, clause (c) of sub-rule (3) of Rule 6 of 2004 Rules would apply.

18. Applying the principle of reversal of cenvat credit apportioning to trading activity from the total credit availed on common input services, I am of the opinion that the appellant ought to have reversed the credit, which they have implemented by them from 01.04.2009, for the earlier period also, as activity of trading was neither a service amenable to service tax nor fall within the scope of manufacturing activity. On the contrary, they claimed to have intimated to the department through various communications, discussed above, which found to be misleading and inconsistent; indicates the intention not to reverse the proportionate credit attributable to the trading activity. No doubt the Appellant reversed the proportionate cenvat credit amounting to Rs.35,84,540/- along with interest of Rs.2,25,194/-for the year 2008-09 pursuant to the audit objection, but that cannot contribute to any bona fide belief for non-reversal proportionate credit for earlier period 2006-07 & 2007-08 for which extended period of limitation is invoked, as no evidence has been placed on record harboring such belief. Thus, in my considered opinion the extended period is invokable in the present case. In more or similar circumstances, the Hon’ble Bombay in Responsive Industries Ltd. (Unit-II) Vs. Commissioner of CGST and CE, Palghar [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 the Appellant would not be available.

9. The contention that there was a bonafide belief that the Appellant are not liable to pay the service tax on outward transportation of goods and the GTA is not supported by any reasonable explanation. The bonafide belief that one is not liable to pay the tax has to be based on some facts on record which led to the belief. It is not the Appellant’s case that the belief based on a ruling of the some authority that it not liable to pay service tax on outward transportation. A mere statement to the effect that the Appellant was under a bonafide belief of non liability of paying tax cannot be accepted in the face of clear provision of law. Thus, it is not possible to accept the contention that the Appellant had bonafide belief of for non payment of tax, so as to invoke section 80 of the Act.”

19. Shriram Value Services Pvt. Ltd.’s case (supra), referred to in the Order, where under, the Hon’ble High Court observing that as conflicting decisions available during the period, April 2009 to March 2011, hence extended period cannot be invoked in demanding cenvat credit availed on common input services attributable to trading activity, in my view, is not applicable to the facts of the present case, inasmuch as the period in question was 2006-07, 2007-08, and for the said period the appellant has not produced any conflicting judgments on the issue and for the period 2008-09 they reversed the proportionate credit accepting the audit report. The Hon’ble Delhi High Court in Lally Automobiles Pvt. Ltd.’s case (supra) categorically held that cenvat credit availed on trading activity is not admissible and extended period is invocable. The said judgment has been upheld by the Hon’ble Supreme Court.

20. For the period 2009-10 and 2010-11, I find that on 15.04.2009, the appellant reversed the cenvat credit for the period 2008-09, pursuant to the audit objection and thereafter commenced reversal of proportionate credit attributable to trading activity. The Department in its report dt. 07.11.2014, in response to direction of the Tribunal during the course of hearing of the Appellant’s stay application, informed that the appellant had availed excess credit between 01.04.2009 and 01.04.2011 and sought to recover the same invoking extended period of limitation. I do not see merit in the argument of the Revenue 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).

(D.M. MISRA)
MEMBER(JUDICIAL)

Raja…

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)