2015-TIOL-1036-CESTAT-MUM

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL

WEST ZONAL BENCH, MUMBAI

COURT NO.I

Appeal No.ST/85482/14 & ST/86082/14

Arising out of Order-in-Appeal No. PUN-EXCUS-003-APP-316-13-14 Dated: 26.11.2013

Passed by the Commissioner of Central Excise (Appeals), Pune

Date of Hearing: 22.4.2015

Date of Decision: 8.5.2015

SYNISE TECHNOLOGIES LTD

Vs

COMMISSIONER OF CENTRAL EXCISE, PUNE

COMMISSIONER OF CENTRAL EXCISE, PUNE

Vs

SYNISE TECHNOLOGIES LTD

Appellant Rep by: Shri P S Joshi

Respondent Rep by: Shri Sanjeev Nair, Examiner (AR)

CORAM: P S Pruthi, Member (T)

ST - Trading services - Method of computation of value u/r 6(3A) of CCR, 2004 in respect of

input services used for trading cannot be applied for period prior to 01/04/2011 - Credit

disallowed in proportion of trading turnover to the total turnover is correct - Assessee

appeal dismissed and Revenue appeal allowed: CESTAT [para 6. 6.1, 6.2, 7, 10, 11]

Assessee appeal dismissed/Revenue appeal allowed

Observations of Tribunal:

Merits:

Tribunal is inclined in following decision in Mercedes Benz since being a later judgment and,

therefore, the amount of credit to be disallowed is correctly computed by the adjudicating

authority as in proportion of trading turnover (i.e. sales price of traded goods) to the total

turnover (i.e. trading plus value of output service).

The department is not imposing a condition which is not in the Rules. Department is merely

saying that input credit is available under Service Tax law for providing output services in

terms of the definition of input service in the Cenvat Credit Rules whereas the trading

activity is outside the purview of service tax law.

Limitation:

The appellants have not declared in their ST-3 returns that the input service credit was used

in relation to trading. This amounts to suppression of facts. Therefore, the extended period

of limitation is correctly invoked as the appellants are following self assessment procedure

and taking credit on their own against the provisions of law.

Penalty:

Reducing penalty to 50% of amount confirmed under proviso to Section 78(1) is bad in law

because the proviso became effective from 08/04/2011 whereas the period in the present

case is from 2006-2007 to 2010-2011. The department was not put to notice on application

of Rule 6(3A) by the Commissioner (Appeals) when the show-cause notice did not state this.

Principles of natural justice have been violated. However, issue already decided on merits in

favour of Revenue. In view of applicability of extended time period for suppression of facts,

penalty equivalent to amount of Cenvat Credit demanded as held by the adjudicating

authority upheld.

Case laws relied:

Mercedes Benz India Pvt. Ltd., vs. CCE, Pune I- 2014-TIOL-476-CESTAT-MUM... para 4,

6…relied upon

Ghatge Patil Auto Farm Machinization vs. CCE, Kolhapur - 2014-TIOL-761-CESTAT-MUM ...

para 4.1…referred

CCE, Tirupathi vs. Shariff Motors - 2010 (18) STR 64 (Tri-Bang) ... para 4.1,

6.1…distinguished

Sai Sathya Sai Inst., High Medl. Sciences vs. UOI - 2003 (158) ELT 675 (SC) ... para

4.2…referred

Landis + GYR Ltd., vs. CCE, Kolkata - V - 2013 (2900 ELT 447 (Tri-Kolkata) ... para 4.2, 7

…distinguished

ORDER NOS.A/1217-1218/15/SMB

Per: P S Pruthi:

1. The first appeal is filed by the appellant M.s, Synise Technologies Ltd. against Order-in-

Appeal No. PUN-EXCUS-003-APP-316-13-14 dated 26/11/2013 passed by Commissioner of

Central Excise (Appeals), Pune, confirming demand of Cenvat Credit of Rs. 6,97,822/- along

with interest and imposing a penalty of Rs. 3,48,911/- under Section 78 of the Finance Act,

read with Rule 15 of the Cenvat Credit Rules. The second appeal is filed by the Revenue

against the same Order on the ground that the Commissioner (Appeal) has erred in

modifying the demand confirmed by the adjudicating authority for the period 2006-07 to

2010-11 from Rs. 21,05,690/- and reducing the same to Rs. 6,97,822/- and in reducing the

penalty to 50% of the amount of Cenvat Credit demanded.

2. The appellant is engaged in the provision of "Business Auxiliary Services” (BAS) and IT

Software Services as well as trading of scrap. They availed Cenvat Credit of service tax paid

on common services received for providing output services as well as in trading activities. As

the trading activity is not taxable under Central Excise law or Service Tax law, the benefit of

wrongly availed Cenvat Credit on input services used in trading activity and amounting to Rs.

21,05,690/- during the period April 2006 to March2011 was denied by the adjudicating

authority, with option to pay 25% of duty as penalty if deposited within 30 days of the

receipt of adjudication order in terms of Section 78 of the Finance Act read with Rule 15 (3)

of the Cenvat Credit rules, The credit was disallowed in proportion of trading turnover (i.e.

sales price of traded goods) to the total turnover (i.e. trading plus value of output service).

In appeal proceedings, the Commissioner (Appeals) decided that, since with effect from

01/04/2011 the definition of exempted services was amended to include trading and

"method of computation of value” of input services used for trading was prescribed in Rule

6 (3A), the same formula can be adopted for the period of dispute to arrive at the quantum

of Cenvat Credit used in the trading activities. He accordingly reduced the amount of Cenvat

Credit demanded to Rs. 6,97,822/- along with interest under section 75 and imposed

penalty under Section 78 amounting to Rs. 3,48,911/-.

3. Heard both the sides and considered the submissions.

4. The contention of the learned Counsel for the appellant is that there is no provision in law

for disallowing Cenvat Credit, either partially or proportionately, on input services

commonly used for providing output services and in trading activities. Further, the inclusion

of trading under exempted services was made effective from 01/07/2012. Hence, prior to

this date, as the definition of exempted service did not include trading, the denial of Cenvat

Credit as done is not correct. He contested the demand confirmed by the adjudicating

authority in which the total trading turn over was considered to deny the Cenvat Credit on

the input services going into the trading activities. According to him this is patently wrong

because the value of trading activity should be computed on the basis of selling price minus

cost price which formula was adopted from 01/04/2011 in Rule 6(3D) of the Cenvat Credit

Rules. But the adoption of this formula was adopted from retrospectively as worked out in

Tribunal's decision in the case of Mercedes Benz India Pvt. Ltd., vs. CCE, Pune I- 2014 (36)

STR 704 (Tri-Mumbai) -2014-TIOL-476-CESTAT-MUM, is also wrong. In the absence of any

provision disallowing cenvat credit used in trading, the function of legislature cannot be

taken over by any other authority.

4.1 The learned Counsel relies on the decision of the Tribunal in the case of Ghatge Patil

Auto Farm Machinization vs. CCE, Kolhapur - 2014-TIOL-761-CESTAT-MUM and in the case of

CCE, Tirupathi vs. Shariff Motors - 2010 (18) STR 64 (Tri-Bang) which held that credit cannot

be denied even if part of the input service credit is used in paying service tax on reverse

charge basis on GTA services rendered for transportation of vehicles to the authorised

service station, the provision of such GTA services being related to trading activity only.

4.2 The learned Counsel argues on the ground of time bar stating that prior to 2011 all input

service used in connection with the business were entitled to Cenvat Credit. Their activity of

trading is a business activity. It was only in 2011 that the definition of exempted service

included trading activity Hence, as the department itself was not clear on the treatment of

trading activity vis-a-vis Cenvat Credit, invoking the extended time period is not justified. He

relies on the Supreme Court judgement in the case of Sai Sathya Sai Inst., High Medl.

Sciences vs. UOI - 2003 (158) ELT 675 (SC) to state that it was for Government to impose

conditions while considering fulfilment of exemption or otherwise. And in the present case,

there was no restriction in using credit for trading. He relied on the Tribunal judgment in the

case of Landis + GYR Ltd., vs. CCE, Kolkata - V - 2013 (2900 ELT 447 (Tri-Kolkata) which held

that if circumstances or facts are not clearly spelt out, extended time period cannot be

invoked.

5. The learned DR reiterates the findings of the Commissioner. He emphasizes that trading is

not a service at all. The question of permitting input service credit for providing output

activity of trading does not arise at all. Therefore, the apportionment of credit which goes

into the trading activity was correctly done by the Commissioner following the Tribunal

decision in the case of Mercedes Benz India Pvt. Ltd., (supra). He submits that the judgment

in the case of Shariff Motors (supra) relied upon by the learned Counsel is not relevant

because the circumstances in those cases are that both the activities involved are in the

nature of services, namely, the authorised service station service and GTA service.

Therefore, the facts are distinguishable. The learned DR also submit that the Commissioner

(Appeals) has gone beyond the show-cause notice in computing the formula in accordance

with the Rule 6 and he did not put the department to notice in this matter.

6. I have carefully considered the facts of the case and the submissions made by both sides.

It is clear from the definition of input service that the input must be used for providing

output service. The appellant have strongly relied on the fact that during the period in

dispute input service credit was not disallowed in the statute if the said services are used in

trading activities. We find that trading is altogether outside the purview of Service Tax law.

Cenvat credit of services is permissible on input service in accordance with Rule 3 of Cenvat

Credit Rules. The input service is defined under Rule 2(l) as a service used for providing

output service. Even the inclusive part of definition of input service under Rule 2(l) only

includes services used in the business of providing output service. Trading not being an

output service, credit cannot be allowed on the input services used for trading. Reliance is

placed on the case of Mercedes Benz India Pvt. Ltd., (supra) which held as follows:

"3. The learned counsel for the appellants submitted that trading activity is not at all a

service. According to Rule 6(2) of Cenvat Credit Rules, the appellant is required to maintain

separate account only in respect of exempted service and dutiable service. Since trading

activity cannot be considered a service at all, the question of maintenance of separate

accounts does not arise. Further, he also submits that services such as advertisement,

security, courier, telephone, banking and professional charges are used commonly for

trading activity as well as maintenance and repair, commissioning and installation services.

It is not correct to say that these services are not required or have not been utilized for

trading activity also. He submits that entire credit has been disallowed without taking this

aspect into account even though it had been submitted by the appellant that these services

had been used for both the activities. On the other hand learned DR would submit that the

lower authorities after verifying the records have come to the conclusion that these services

have not been utilized for trading activity. Further, he also submits that duty demand has

been made as per Rule 3 of Service Tax Credit Rules, 2002. It is his contention that since

trading activity is not at all a service, the provisions of Rule 6 of Cenvat Credit Rules and

provisions of Service Tax Credit Rules cannot be applied.

4. The issues to be decided in this case are:

(i) Whether trading activity can be called a service.

(ii) Whether Rule 6 of Cenvat Credit Rules, 2002 and Service Tax Credit Rules, 2002 would be

applicable when input services are used in respect of trading activity as well as taxable

services.

(iii) if Cenvat Credit Rules and Service Tax Credit Rules are not applicable, the procedure to be

followed by the assessee for availing input service tax credit.

5. As regards the issue as to whether trading activity can be called a service, it is quite clear

that since trading activity is nothing but purchase and sales and is covered under sales tax

law, it may not be appropriate to call it a service. Therefore it has to be held that trading

activity cannot be called a service and therefore it cannot be considered as an exempted

service also.

6. The next question that arises is whether Cenvat Credit Rules and Service Tax Credit Rules

would be applicable. Rule 6(2) of Cenvat Credit Rules is reproduced below :

"Where a manufacturer or provider of output service avails of CENVAT CREDIT in respect of

any inputs or input services, [***], and manufactures such final products or provides such

output service which are chargeable to duty or tax as well as exempted goods or services,

then, the manufacturer or provider of output service shall maintain separate accounts for

receipt, consumption and inventory of input and input service meant for use in the

manufacture of dutiable final products or in providing output service and the quantity of

input meant for use in the manufacture of exempted goods or services and take CENVA T

credit only on that quantity of input or input service which is intended for use in the

manufacture of dutiable goods or in providing output service on which service tax is

payable."

7. Sub-rule (3) of Rule 6 provides that where output service provider does not maintain

separate account, he has to follow the procedure or avail the options available under that

Rule. But this rule is applicable only when the output service provider is providing services

which are chargeable to service tax and as well as exempted services. Similar is the situation

when we examine Rule 3 of Service Tax Credit Rules, 2002. Both these rules clearly speak of

exempted services. Rule 3 of Service Tax Credit Rules also covers non taxable services. Since

trading activity is not at all a service, it is not correct to apply these provisions.

8. Then the question arises as to whether the appellant would be eligible for the full amount

of service tax credit taken by them on input services can be used for payment of service on

output service provided the input services have been used for providing the output services.

No doubt there is no one to one correlation required. This is the reason why provisions have

been made in Cenvat Credit Rules and Service Tax Credit Rules to cover such situations where

an assessee is providing both exempted and taxable services. In cases where an assessee is

undertaking activities which cannot be called a service or which cannot be called

manufacture, that activity goes out of the purview of both Central Excise Act as well as

Finance Act, 1994. Therefore, we have a situation where an assessee would not be eligible to

take input Service tax credit on an output which is neither a service nor excisable goods and

at the same time there is no provision to cover situations where an assessee is providing a

taxable service and is undertaking another activity which is neither a service nor

manufacture. In such a situation the only correct legal position appears to be that it is for the

appellant to choose and segregate the quantum of input service attributable to trading

activity and exclude the same from the records maintained for availment of credit. Naturally

this cannot be done in advance since it may not be possible to forecast what would be the

quantum of trading activity and other activity which is liable to service tax. The only obvious

solution which would be legally correct appears to be to ensure that once in a quarter or

once in a six months, the quantum of input service tax credit attributed to trading activities

according to standard accounting principles is deducted and the balance only availed for the

purpose of payment of service tax of output service. This proposition is not against the law in

view of the fact that there are several decisions of various High Courts and also of the

Tribunal wherein a view has been taken that subsequent reversal of credit amounts to non-

availment of credit."

15. We find considerable force in the arguments of Ld. Senior Advocate for the appellant

that changes made by Explanation are substantive in nature. Explanations have been made

in Rules by a Notification without giving it retrospective effect and though notification was

issued on 1.3.2011 but came into force only 1.4.2011 and thus it cannot have retrospective

effect. In our view, Revenue's act as to consider ‘trading' as exempted service for the period

Aug. 2010 to March, 2011 in E/1019/12-Mum and demanding 6% of the trading turnover is

not correct.

16. In view of the above, we have come to the conclusion that trading was not a service and

therefore, cannot be considered as an exempted service during the period prior to 1.4.2011

and the amended provision with effect from 1.4.2011 will not have retrospective effect. The

next issue to be decided is how to apportion the credit of input service taken by the

appellant, where such input services have been used both in the manufactured goods and

trading activities of the imported goods. It is in this context that the ld. Sr. Advocate for

appellant has argued that the same should be computed with reference to clause (c) of

Explanation I appended after Rule 6(3D) of Cenvat Credit Rules, 2004. The said provision as

noted earlier was inserted with effect from 1.4.2011. The argument of the ld. Sr. Advocate is

that the said explanation only provides the procedure for computation and since this change

is procedural in nature it will have a retrospective effect. Ld. Sr. advocate also argued that in

case of traded goods, the value addition by the appellant is only the difference between the

sale price and the purchase price of the goods which is not so in the case of manufactured

goods. On a query by the Bench that since Ld. Sr. advocate is arguing that only the value

addition should be taken in respect of the traded goods, then why the same criteria should

not be applied in the case of manufactured goods i.e. take the differential amount between

the selling price and cost of various raw materials Ld. Sr. advocate stated that in case of

manufactured goods so many things go into production process like labour, electricity and

many other services and it will not be appropriate to take the value addition. In support of

his contention that in case of traded goods only value addition should be taken, Ld. Sr.

advocate took us through the judgment of the Court (5 th Chamber) dated 14.7.1998 in case

C-172/96 which was passed on a reference under Article 177 of the EC Treaty by the High

Court of Justice of England and Wales, Queen's Bench Division. We have gone through the

said judgment carefully. In the said case, the issue was how to determine the turnover for

purpose of value added tax in case of transactions in different currencies by the First

National Bank of Chicago. The Bank used to purchase various currencies at a certain rate in

other currencies. Similarly, the Bank used to sell various currencies in other currencies. The

difference between the two is generally understood as spread and would be the income of

the Bank. The question was what should be considered as the turnover for purpose of VAT.

It is in that context, the said court has held that the spread, the difference between the

selling price and purchase price should be taken for the purpose of VAT. In the present case,

the dispute is not relating to computation of turnover for purpose of charging a tax as there

is no tax liability in case of traded goods. The question is how to apportion the credit of tax

on the input service between the manufactured goods and the traded goods, whether we

should take the turner of the manufactured goods and traded goods for apportioning the

credit of the service tax on input services or some other criteria should be followed. We,

therefore, do not find any applicability whatsoever of the said judgment in the facts and

circumstances of the present case. Another judgment quoted by the Ld. Sr. Advocate is the

judgment of the Hon'ble Supreme Court in the case of Commissioner of Wealth Tax, Meerut

vs. Sharvan Kumar Swarup & Sons reported in (1994) 6 SSC 623. In this case, wealth tax was

applicable on various assets. A new rule was inserted with effect from 1.4.1979 to

determine the market value of properties. The question was whether the new inserted rule

can be used for determining the value of properties for earlier period and hence determine

the wealth tax. It is in this context that the Hon'ble Supreme Court has taken a view that the

same would be applicable to all the proceedings pending at the time of its enactment. In the

present case, as mentioned earlier, it is not the computation of tax but apportionment of

the credit of service tax on input services availed for manufactured goods and traded goods.

As we have already held that trading was not a service and therefore cannot be considered

as an exempted service before 1.4.2011, therefore, the substantive provision itself did not

exist before the said date. Under the circumstances, we are of the view that the said

judgment is not applicable in the facts and circumstances of the present case.

17. Having come to the conclusion that clause (c) of Explanation 1 has no application for

determining the apportionment of the credit of service tax on input services, the question is

how to determine the same. We find that the major amount pertains to the services in

relation to the advertisement, even management, business auxiliary service and business

support service. When the appellant is spending certain amounts for sales promotion such

as advertisement of the cars and consequent to the said expenditure he has certain

turnover of the cars out of which some of the cars manufactured indigenously while other

cars are imported and hence traded. In our view, the credit of tax paid on such sales

promotion activities should be apportioned with reference to the turnover of the

manufactured cars and turnover of the traded cars. For example, if the turnover in

particular period is say Rs.1000 crore out of which turnover of Rs.700 is pertaining to the

indigenous cars and turnover of Rs.300 crores pertains to the imported and traded cars then

if the input credit of 10 crores is available then 7 crore should be considered for the

manufactured cars in India and credit of Rs.3 crore should be considered pertaining to

imported and traded cars. If we go by the argument of the Ld.Sr.Advocate then the value of

traded cars will have to be taken as Rs.30 crores and total turnover will be considered as

Rs.730 crores and credit of Rs.10 crores will have to have apportioned in the ration of

700:30 or 70:3. Obviously, this would be leading to incorrect results. It would amount to

96% expenditure (relating to sales promotion) is for the domestically manufactured goods

and approximately 4% expenditure on the imported and traded cars. Similar is the position

in respect of event management service. Here again, the event management, service is used

both for indigenously manufactured cars and also imported and traded cars. Same

reasoning would be equally applicable for business auxiliary and business support service. In

view of the above analysis, in our view, it would be appropriate to apportion the credit of

service tax on input services in the ration as is the turnover of manufactured cars and

imported and traded cars. In fact, we have gone though clause (c) of Explanation I added

with effect from 1.4.2011 and are of the view that perhaps the said new method has been

adopted to encourage the trading of the goods rather than the manufacturing of the goods

(otherwise criterion should have been same viz. based upon turnover or value addition). We

therefore hold that for the period under dispute the credit of service tax paid on the

common input services should be apportioned in the same ratio as the turnover of the

manufactured and traded cars.

6.1 The learned Counsel has placed reliance on the case of Shariff Motors (supra) which held

that:

"3. The Respondents are authorized dealers of ‘Hero Honda' Motor Cycles. They are also

providing servicing or repair for the said motor cycles. The issue is whether the Respondents

are eligible for availing credit of service tax paid on transportation of motor cycles from the

factory to the show room as input service and utilized it as output service for payment of

service tax on the services provided as an authorized service station. The Original authority

denied the credit on the ground that input service is applicable only if the input and output

services are of the same category. Therefore the credit was denied. The Respondents

approached the Commissioner (Appeals). The Commissioner (Appeals) held that the

respondents are entitled for the credit. The Revenue is aggrieved over the impugned order of

the Commissioner (Appeals). The ‘Grounds of Appeal' are as follows :-

(a) The Commissioner (Appeals) has not correctly interpreted the definition of ‘input service'.

As per Cenvat Credit Rules, 2004 definition of "input service” means -

(i) Used by a provider of taxable service for providing an output service, or

(ii) .......

As per the above definition for any service to be qualified as input service, it should be used

for providing an output service. In the instant case the service provider is availing credit of

service tax paid on the amount incurred for inward transportation of vehicles to be sold from

the show room. The input service is related only to the sale of the vehicles. It is not at all

related nor required for doing servicing on the vehicles to be received much later to their sale

and hence cannot be treated as input service for providing output service under "authorized

service station” category.

(b) Further the vehicles sold by them would not come to their service station in as such

condition for servicing purpose. They receive only used/old condition vehicles at service

station for servicing purpose. It cannot also be ruled out that they may be servicing the

old/used vehicles at service station sold by other dealers. There is no relation of input service

(inward transportation of new vehicles) of the show room to output service of service

station, i.e. servicing of motor vehicles.

(c) In other words the services like receiving the new vehicles by road through transporter to

the show room ends with the sale of the same. Further there is no activity at the show room

for the new vehicles received, other than the sale of the same. Hence the input service of

inward transportation of new vehicles is closed with the sale of new vehicles.

(d) The service at station is totally a different activity i.e. servicing the old/used vehicles only

and there is no relation to the input services received at the show room to output services

from the service station.

(e) The inward transportation of new vehicles is not meant for service station. Hence the

input service of GTA cannot be treated as input service to service station in terms of Cenvat

Credit Rules, 2004.

4. The learned Departmental Representative reiterated the ‘Grounds of the Appeal'.

5. The learned Consultant for the Respondents stated that the view taken by the Revenue is

not correct. He stated that the Respondents received ‘Hero Honda' Motor Cycles and then

they discharged the service tax liability on the tax paid as GTA as the goods had to be

received from the factory to their show room. Therefore the service tax paid has been taken

as credit. The Respondents themselves are also service providers as authorized service

dealers. As authorized service dealers, they are required to undertake servicing of the

vehicles. The Revenue's contention is that the servicing is done only on old vehicles at service

station and that they may be servicing the old used vehicles at service station sold by other

dealers. There is no relation of input service (inward transportation of new vehicles) of the

show room to output service of the service station servicing of motor vehicles. This is the

main contention of the Revenue.

6. We have gone through the records of the case very carefully. The Respondents are paying

service tax on GTA services on the service tax paid on transportation of the vehicles to their

show room. They are also providers of output service. This output service is servicing of

various vehicles. The Revenue has taken a very narrow view that the Respondents might be

servicing even vehicles sold by other authorized dealers. In our view, unless the vehicles are

received and sold, there would not be any servicing of the same. Moreover the definition of

the input service is broad enough to cover the input service availed by the Respondents and

also the output service rendered by them. We do not find any merit in the appeal of the

Revenue. The Respondents are rightly entitled for the credit. Hence we reject the Revenue's

appeal and uphold the impugned order."

I find that the above case is placed on a somewhat different footing. The activities involved

are both services namely, GTA service and authorised station service. That is, use of input

service credit for paying tax on GTA service. IN the present case the issue is of denial of

service tax credit on input services used for trading. The appellant is not an output service

provider in respect of trading. I also find that Mercedes Benz is a later judgment and

therefore, I am inclined to follow it.

6.2 The Mercedes Benz judgment also held that the formula introduced in Rule 6 in 2011

cannot be applied retrospectively. Following this judgment, I hold that the amount of credit

to be disallowed was correctly computed by the adjudicating authority. The reliance by the

learned Counsel on the case of Sai Sathya Said Inst. (supra) is inappropriate. The department

is not imposing a condition which is not in the Rules. Department is merely saying that input

credit is available under Service Tax law for providing output services in terms of the

definition of input service in the Cenvat Credit Rules whereas the trading activity is outside

the purview of service tax law.

7. On issue of time bar, the learned Counsel has relied on Landis + GYR Ltd. (supra) which

held that:

I find that the show cause notice does not spell out the circumstances or facts which were

suppressed and how the appellant had availed the said admissible CENVAT credit with mala

fide intention. I also find that the Adjudicating authority as well as the Appellate authority

did not discuss the facts which were suppressed or mis-declared or mis-stated by the

appellant, except observing that had the Audit not pointed out the said wrong credit, the

amount would not have been recovered from the appellant. I find this reasoning standing

alone cannot be accepted as a ground for confirming suppression, mis-statement or mis-

declaration of facts by the appellant, in availing the inadmissible CENVAT credit on the input

services used in the trading of the goods and not in or in relation to the manufacture of the

goods.

But in the present case, the appellant have not declared in their ST-3 returns that the input

service credit was used in relation to trading. This amounts to suppression of facts.

Therefore, the extended period of limitation is correctly invoked as the appellants are

following self assessment procedure and taking credit on their own against the provisions of

law. Therefore, the present case is distinguishable from the case of Landis +GYR Ltd.

Reliance is placed on the case of Mercedes Benz (supra) as that judgment involved the same

circumstances as far as the issue of time bar is concerned.

10. I agree with the appeal of Revenue that reducing penalty to 50% of amount confirmed

under proviso to Section 78(1) is bad in law because the proviso became effective from

08/04/2011 whereas the period in the present case is from 2006-2007 to 2010-2011. I am

also inclined to agree with the learned AR that the department was not put to notice on

application of Rule 6(3A) by the Commissioner (Appeals) when the show-cause notice did

not state this. I find that principles of natural justice have been violated. However, I have

already decided the issue on merits in favour of Revenue. In view of applicability of

extended time period for suppression of facts, I uphold the penalty equivalent to amount of

Cenvat Credit demanded as held by the adjudicating authority.

11. The appeal filed by the appellant is dismissed. Revenue's appeal is allowed.