2010 (12) TMI 355 - AT - Service Tax

Waiver of pre-deposit - Rule 6(3)(c) of Cenvat Credit Rules 2004 - Input service distributor - assessee has not maintained separate records at their Corporate Office for the input services commonly used in the taxable output services provided from the branches or in the exempted services provided from the Corporate Office - There is no allegation or finding that the assessee provided taxable and exempted services - the basis is that the credit transferred by the Corporate Office was not admissible either as they did not qualify as input service or as the Corporate office had not fulfilled the conditions of Rule 6(3)(c) of CCR - Held that the Corporate Office registered with the Service Tax department cannot be held to have rendered taxable and exempted services for the reason that it engaged in trading activity. Therefore these demands are prima facie not sustainable Rule 7 of CCR - prima facie Adjudicating Authority has no jurisdiction to raise the question of admissibility or otherwise of the impugned credit allotted by the ISD and availed by the assessee - Decided in the favour of the assessee

Issues Involved:
1. Short payment of service tax due to excess Cenvat Credit utilization.
2. Irregular availment and utilization of Cenvat Credit.
3. Applicability of interest on the above amounts.
4. Imposition of penalties under Rule 15(4) of CCR read with Section 78 of the Finance Act, 1994.
5. Classification of trading activity as exempted services.
6. Jurisdiction of Adjudicating Authority over credit distribution by ISD.

Issue-wise Detailed Analysis:

1. Short Payment of Service Tax due to Excess Cenvat Credit Utilization:
The assessee was found to have short paid service tax amounting to Rs. 3,55,05,053 during the period from April 2005 to March 2008. This shortfall was attributed to the excess utilization of Cenvat Credit in violation of Rule 6(3)(c) of the Cenvat Credit Rules, 2004 (CCR). The assessee utilized the entire Cenvat Credit available towards the discharge of service tax liability on taxable output services instead of restricting the credit utilization to 20% of the service tax payable, as stipulated by the rule.

2. Irregular Availment and Utilization of Cenvat Credit:
The assessee irregularly availed and utilized Cenvat Credit amounting to Rs. 1,69,30,164. This amount included credits on services such as Marine and Transit Insurance, Burglary Insurance, and Consultancy Charges, which were used exclusively for the procurement of telecommunication equipment-a non-taxable trading activity. Additionally, credits on services like flower arrangements, garden maintenance, and real estate services for residential accommodation were also deemed irregular as they did not qualify as input services under Rule 2(l) of the CCR.

3. Applicability of Interest on the Above Amounts:
Interest was applicable on the short-paid service tax and the irregularly availed Cenvat Credit as per the provisions of the Finance Act, 1994. The specifics of the interest calculation were not detailed in the judgment, but the demand for interest was upheld in line with the statutory requirements.

4. Imposition of Penalties:
Penalties were imposed on the assessee under Rule 15(4) of CCR read with Section 78 of the Finance Act, 1994. The penalties included a rate of 2% per month starting from the first day after the due date until payment, subject to a maximum of the service tax demanded. Additionally, a penalty of Rs. 5,25,00,000 was imposed for the violations.

5. Classification of Trading Activity as Exempted Services:
The Department treated the trading activity of the Corporate Office, which involved the sale of telecommunication equipment, as exempted services under Rule 2(e) of the CCR. However, the Tribunal noted that the definition of exempted services covered only services notified as such and did not include activities on which no tax was levied under Section 66 of the Finance Act. The Tribunal held that the trading activity did not constitute exempted services, and therefore, the demand for service tax of Rs. 3,55,05,053 was not sustainable.

6. Jurisdiction of Adjudicating Authority over Credit Distribution by ISD:
The Tribunal referred to the case of CST v. Godfrey Philips India (P.) Ltd., where it was held that the eligibility of service tax credit had to be examined at the end of the Input Service Distributor (ISD). The Corporate Office, registered as an ISD, distributed the Cenvat Credit, and its eligibility could only be questioned by the authorities under whose jurisdiction the ISD functioned. Consequently, the Adjudicating Authority did not have jurisdiction to question the admissibility of the credit allotted by the ISD and availed by the assessee.

Conclusion:
The Tribunal ordered a total waiver of the pre-deposit of dues adjudged against the appellant and stayed the recovery thereof pending the disposal of the appeal. The basis for the demands was found to be unsustainable, and the jurisdiction of the Adjudicating Authority over the credit distribution by the ISD was questioned. The Tribunal's decision emphasized the proper interpretation of exempted services and the jurisdictional limits concerning the distribution of Cenvat Credit by an ISD.

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