The Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that recovery of CENVAT credit on common input services used for trading and manufacturing activities was not sustainable in law, particularly when the extended period of limitation was wrongly invoked.
The bench of P.A. Augustian (Judicial Member) and Pullela Nageswara Rao (Technical Member) has observed that the appellant had been filing ER-4 return, a statutory return showing the details of the trading activity done by the appellant and the cenvat credit availed by the appellant on the input services, failure of the respondent to issue show cause notice even within one year from the date of the knowledge.
The dispute arose from allegations that the assessee, engaged in manufacturing MS castings, ingots, and trading of goods such as ball clay and bauxite, had availed CENVAT credit on input services like business support and security services without maintaining separate accounts as required under Rule 6(2) of the CENVAT Credit Rules, 2004. The Department treated trading as an “exempted service” and demanded amounts under Rule 6(3), along with interest and penalty.
During the proceedings, the assessee argued that prior to 01.04.2011, trading was not included within the definition of “exempted service” under Rule 2(e), and therefore, no obligation existed to reverse credit or maintain separate accounts. It was further contended that the amendment introduced via Notification No. 3/2011-CE (NT), which clarified that trading is an exempted service, could not be applied retrospectively for the purpose of raising demands.
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However, the Tribunal noted that the issue of retrospective applicability had already been settled by a Larger Bench decision in Dorma India Pvt. Ltd., wherein trading was held to qualify as an exempted service even for prior periods. Despite this, the Tribunal found significant merit in the assessee’s arguments on limitation and factual aspects of credit reversal.
A key factor influencing the decision was that the Department had prior knowledge of the assessee’s trading activities and availment of credit through audits and statutory filings such as ER-4 returns. The Tribunal observed that when such material facts were already available, invocation of the extended period of limitation on grounds of suppression was not justified. Consequently, the demand raised for the period 2009–2013 was held to be time-barred.
Further, for the financial year 2011–12, the Tribunal noted that the assessee had already reversed the entire CENVAT credit attributable to common input services along with applicable interest. It held that such reversal effectively amounted to non-availment of credit, thereby nullifying any further liability under Rule 6(3).
On the issue of penalty, the Tribunal ruled that in the absence of suppression or intent to evade tax, and given the interpretational nature of the dispute, penal provisions were not attracted.
Case Details
Case Title: M/s. Bhuwalka Castings and Forging Private Ltd. Versus Commissioner of Central Excise
Citation: JURISHOUR-993-CES-2026(BANG)
Case No.: Central Excise Appeal No. 21057 of 2016
Date: 27.04.2026
Counsel For Appellant: A. S. Monnappa
Counsel For Respondent: Rajashekar. B. N. N, Superintendent (AR)
