2026-VIL-549-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Trading activity amounting to "exempted service" - Department alleged that the assessee was engaged in both manufacturing of vehicles and trading of vehicles through regional sales offices, which constituted "exempted service" under Rule 2(e) of the CENVAT Credit Rules, 2004, requiring reversal of CENVAT credit under Rule 6 – HELD - The assessee was primarily engaged in manufacturing of vehicles at its factory and clearing them on payment of central excise duty. The mere fact that the vehicles were subsequently sold through regional sales offices do not amount to "trading" activity and cannot be treated as an independent "exempted service" for the purposes of Rule 6 of CCR, 2004 - The show cause notices merely proceeded on the assumption that the sale of vehicles through Regional Sales Offices amounts to trading, such presumption is insufficient to invoke the provisions of Rule 6. The Department is required to establish a clear nexus between the input services on which credit was taken and the exempted activity alleged to have been undertaken. The department failed to establish that the assessee was engaged in any trading activity or provision of exempted service using common inputs/input services, and accordingly, the provisions of Rule 6 were not applicable – The artificial bifurcation of the same manufacturing activity so as to invoke credit reversal provisions is impermissible. The demand raised under Rule 6 of the CENVAT Credit Rules is set aside and the appeal is allowed - Applicability of extended period of limitation - The department invoked the extended period of limitation under Section 11A of the Central Excise Act in the first show cause notice, alleging suppression of facts by the assessee – HELD - The relevant transactions were duly reflected in the statutory records and financial statements of the assessee, which were available to the department during audit. Mere failure to adopt a particular interpretation of law cannot be treated as suppression of facts. The invocation of extended period of limitation is not justified - The demand raised under the first show cause notice invoking the extended period of limitation is unsustainable, and consequently, the penalties imposed are also set aside.
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