2015 (7) TMI 1221 - AT - Service Tax

CENVAT credit - The appellant avails cenvat credit of service tax paid on various services used for both providing of output services as well as for selling of vehicles - Held that - Rule 3 ibid is the enabling provision, which entitles the service provider to take cenvat credit of service tax paid on any input service received by the provider of output services. Since the appellant is providing the taxable service as well as selling vehicles, had entertained the view that selling vehicles since is not an exempted service, the appellant is entitled for cenvat credit in terms of rule 3 of the said rules. Since the appellant had reversed the cenvat credit attributable to the trading activity i.e. selling of vehicles alongwith interest, the legislative intent behind framing of cenvat credit rules, in my opinion, have been duly complied with. However, since the statement calculating the service tax amount and the interest thereon was submitted for the first time before this Tribunal, I am of the view that the same is required to be verified by the original authority. Appeal allowed by way of remand.

Summary

Issues:
Appeal against impugned order dated 21.01.2014 and 22.01.2014 passed by the Commissioner (Appeals), Central Excise and Customs, Chandigarh-I regarding cenvat credit on services used for providing output services and selling vehicles.

Analysis:
The appellant, engaged in providing taxable services and dealing in vehicles, availed cenvat credit of service tax paid on various services for both output services and vehicle sales. The Department objected to this, leading to confirmation of service tax and penalties. The appellant believed vehicle sales were not exempted services, justifying cenvat credit. The Tribunal's decision in Orion Appliances case supported the appellant's approach of segregating credit for trading activities. The appellant reversed cenvat credit for vehicle sales with interest, complying with cenvat credit rules. The penalty imposed was deemed excessive as the issue was interpretational, resulting in a reduction to Rs. 2,000.

The enabling provision, Rule 3, allows service providers to take cenvat credit on input services for output services. The Tribunal's decision clarified the treatment of trading activities as services for cenvat credit purposes. It emphasized the need to segregate credit for non-service activities and comply with accounting principles. The appellant's reversal of credit for trading activities aligned with legal requirements, ensuring legislative intent was met. The Tribunal directed the original authority to verify the credit reversal details and interest payment, potentially closing the proceedings if the appellant's claims were accurate. The penalty was reduced to Rs. 2,000 each due to the interpretational nature of the issue and lack of evidence of fraudulent intent.

In conclusion, the impugned order was set aside, and the matter remanded for verification of credit reversal and interest payment. If the appellant's claims were validated, the proceedings would be closed, and penalties reduced. The decision underscored the importance of complying with cenvat credit rules and the need for accurate segregation of credit for different activities to avoid penalties and ensure legal compliance.