2013 (8) TMI 801 - AT - Service Tax

CENVAT credit in Input Services - assesse took credit of service tax paid on input services which were common to both taxable services and non-taxable activities - Revenue was of the view that the assesse took Cenvat credit more than what was attributable to taxable service - Notice was issued for recovering such credit taken and utilized duty was demanded along with interest and penalty - Held that - The activity was the trading activity and Cenvat credit cannot be taken on input services used for such activity. - Stay granted partly.

Summary

Issues:
1. Eligibility of Non-banking Financial Service Company (NBFC) to take credit of service tax paid on input services.
2. Dispute regarding the amount of Cenvat credit taken by the appellant.
3. Calculation of credit attributable to trading activities.
4. Arguments regarding income from investments and dividend income.
5. Disputed item of profit on securitization/sell down of loans.
6. Time-barred demand and pre-deposit requirement.

Analysis:
1. The appellant, a Non-banking Financial Service Company, provides services taxable under the Finance Act, 1994, and undertakes activities both taxable and non-taxable. They seek credit for service tax paid on input services common to both types of activities. The Cenvat Credit Rules 2004 allow credit for services used in providing taxable services only, with Rule 6 providing methods for credit calculation when segregation is not feasible.

2. The Revenue alleged that the appellant claimed excess Cenvat credit for the years 2006-07 and 2007-08. A show cause notice was issued, leading to a confirmed demand of Rs. 72,22,807/- along with interest and penalty under Rule 15(4) of Cenvat Credit Rules, 2004. The appellant appealed against this order, seeking a stay on pre-deposit.

3. The dispute focused on the calculation of credit attributable to trading activities, with specific items of trading income identified for the years in question. The appellant argued against considering certain incomes, like interest from investments and dividend income, as trading activities, highlighting the nature of these receipts.

4. The appellant's counsel contended that income from investments in government securities and dividend income should not be classified as trading activities. Additionally, the profit from securitization/sell down of loans was explained as a financial operation, not a taxable service, challenging the department's stance.

5. The Tribunal found prima facie that the sale of loan portfolios constituted a trading activity, thus disallowing Cenvat credit on input services related to this operation. The issue of time-barred demand and the necessity of pre-deposit were acknowledged, with a partial waiver granted subject to a deposit of Rs. 15,00,000/- within a specified timeframe.

6. The judgment emphasized the need for further examination of contentious issues like the taxability of investments and the nature of trading activities during the final hearing. The appellant was directed to comply with the pre-deposit requirement, with the balance dues from the impugned order put on hold pending appeal proceedings.