2014 (7) TMI 750 - AT - Service Tax

Denial of CENVAT Credit - Distribution of service tax through ISD - Trading services - Held that - it is the appellant manufacturer who has taken the credit and therefore, the recovery of wrongly taken credit has to be effected from him. The distribution of service tax through ISD is only a facility provided under the Rules and does not deal with recovery. Therefore, the credit, if taken wrongly, has to be recovered from the person who has taken credit. Whether trading could be considered as an exempted service prior to 1-4-2011 in view of the explanation inserted in Rule 2(e) of CCR, 2004, and if credit is not admissible, what is the methodology that should be adopted for quantification of ineligible input service tax attributable to trading activities - Held that - categorically that prior to 01/04/2011 trading cannot be considered as an exempted service. In the said decision, it was held categorically that apportionment of input service tax credit on common input services used for trading activity and manufacturing activity could be done based on the ratio of their respective turnover. In view of this decision, we are of the considered view that the demand for reversal of input service tax credit in the present case adopting the ratio of the turnover of trading activity and manufacturing activity, in the impugned order, cannot be faulted. Waiver of pre deposit - Held that - when there is no prima facie case and financial hardship is not pleaded, the interest of revenue need to be protected - Conditional stay granted.

Summary

Issues:
- Jurisdiction of the adjudicating authority regarding recovery of wrongly taken credit
- Eligibility of credit on trading activities prior to 01/04/2011
- Methodology for quantification of ineligible input service tax attributable to trading activities
- Pre-deposit requirement and financial hardship consideration

Jurisdiction of the Adjudicating Authority:
The appeal and stay petition challenged an order confirming a duty demand and penalty on the appellant for taking credit attributable to trading activities. The appellant argued that the Input Service Distributor (ISD) should be responsible for wrongly distributed credit, not the appellant. The Revenue contended that the jurisdictional excise authority over the unit availing the credit should initiate recovery proceedings as per Rule 14 of the Cenvat Credit Rules, 2004. The Tribunal held that the recovery of wrongly taken credit must be from the manufacturer who availed the credit, as per the Rules and clarified by the Board. The Tribunal dismissed reliance on previous decisions that did not consider Rule 14 for recovery of wrongly taken credit.

Eligibility of Credit on Trading Activities:
The appellant claimed entitlement to credit on trading activities based on a circular and Delhi High Court decision. The Revenue argued that trading was not an exempted service before 01/04/2011, as clarified in a previous Tribunal case. The Tribunal held that trading could not be considered an exempted service before 01/04/2011. It was decided that the demand for reversal of input service tax credit based on the turnover ratio of trading and manufacturing activities was justified.

Methodology for Quantification of Ineligible Input Service Tax:
The Tribunal referred to the Mercedes Benz India Pvt. Ltd. case, which established the methodology for apportioning input service tax credit on common input services used for trading and manufacturing activities. The Tribunal upheld the demand for reversal of input service tax credit based on the turnover ratio of trading and manufacturing activities.

Pre-Deposit Requirement and Financial Hardship Consideration:
The appellant did not plead financial hardship despite referring to a Delhi High Court decision on pre-deposit. The Tribunal cited legal precedents emphasizing the need for a prima facie case and financial hardship to protect the interest of revenue. Therefore, the Tribunal directed the appellant to make a pre-deposit of the entire demand within a specified period, with compliance leading to the waiver of balance dues and stay on recovery during the appeal's pendency.