Post-clearance distribution and sale of goods manufactured by an assessee do not constitute 'trading' for the purpose of CENVAT Credit Rules, 2004, provided duty is discharged on the assessable value; thus, credit reversal under Rule 6 is not attracted.

Per Mr. VASA SESHAGIRI RAO

M/s. Ashok Leyland Ltd., Hosur Unit-II (hereinafter referred to as “the appellant”) is engaged in the manufacture of motor vehicle chassis and commercial vehicles falling under Chapter 87 of the Central Excise Tariff Act, 1985 and is registered with the Central Excise authorities. The appellant had entered into an arrangement with its joint venture company, Ashok Leyland Nissan Vehicles Ltd. (ALNVL), for manufacture of Light Commercial Vehicles known as “DOST” on job work basis at their Hosur plant. Under the said arrangement, ALNVL supplied inputs and components while the appellant undertook assembly and manufacturing activities for a job work consideration. The vehicles so manufactured were cleared on payment of Central Excise duty in terms of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, adopting the transaction value based on the sale price at which the vehicles were sold to Regional Sales Offices.

1.2 Based on audit scrutiny of the appellant’s records and annual reports for the financial years 2011-12 to 2013-14, the Department formed a view that apart from manufacturing dutiable goods, the appellant was also engaged in trading of DOST vehicles through Regional Sales Offices outside Tamil Nadu, which was treated as “exempted service” under Rule 2(e) of the CENVAT Credit Rules, 2004. It was alleged that the appellant had not maintained separate accounts for common input services used for manufacturing and trading activities as required under Rule 6 of the CCR, 2004. Accordingly, a Show Cause Notice dated 14.10.2014 was issued proposing recovery of Rs.12,22,57,000/- for the period 2011-12 to 2013-14 under Rule 6(3) of the CCR, 2004 along with interest under Section 11AA and penalty under Section 11AC of the Central Excise Act, 1944, which culminated in Order-in-Original No. LTUC/503/A-2015-C dated 24.11.2015 confirming the demand along with interest and equivalent penalty. Subsequently, another Show Cause Notice dated 21.04.2016 covering the period April 2015 to September 2015 proposed recovery of Rs.3,36,98,000/- under Rule 6(3) of the CCR, 2004 along with interest and penalty of Rs 33,69,800/-, and the adjudicating authority confirmed the demand through the impugned order holding that the appellant was engaged in manufacture as well as trading of vehicles attracting the provisions of Rule 6 of the CCR, 2004.

2. Aggrieved by the said orders, the appellant has filed the present appeals before this Tribunal.

3. The Ld. Advocate Mr. P.R. Renganath, appeared on behalf of the Appellant and advanced detailed submissions in support of the Appeal and the Ld. Authorized Representative Ms. O.M. Reena, appeared for the Revenue and defended the Impugned Orders.

4. The Ld. Advocate Mr. P.R. Renganath made the following submissions which are summarized as below: -

4.1 The entire case of the department is based on the assumption that the appellant was engaged in trading activity, whereas in reality the appellant was functioning primarily as a manufacturer and job worker for Ashok Leyland Nissan Vehicles Ltd. (ALNVL). It was submitted that the vehicles were manufactured at the appellant’s Hosur plant and cleared on payment of Central Excise duty adopting the assessable value determined in accordance with Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The appellant argued that the vehicles were not purchased by them as a trader; rather the vehicles were manufactured by the appellant and the ownership and pricing structure were governed by the contractual arrangement