2014 (12) TMI 455 - AT - Service Tax

Reversal of cenvat credit towards trading activity - Rule 6 (3) of CENVAT Credit Rules 2004 - Held that - Appellant was liable to reverse proportionate credit on the total trading turnover which has been worked out by the appellant as ₹ 31,89,728/- in our opinion has also to be deposited. Since amendments in the relevant rules and provisions were brought in 2011 to deem trading as a service and separate exemption notification was issued making it an exempted service. Prior to that, if a service was non-taxable or exempt, it was to be considered as an exempted service and if common services were used for exempted services and taxable services/dutiable manufactured items, separate accounts were required to be maintained in respect of inputs and input services failing which there were statutory requirements to be fulfilled. Once we hold that trading is not a service and cannot be considered as service prior to 01.04.2011, the provisions of Rule 6(3) of CCR 2004 which requires payment of a percentage of value of the goods traded, in case separate accounts are not maintained would not be applicable. However, since trading is an activity and certain amount of services would have been used in such activity, the appellants have to reverse proportionate credit attributable to trading activity. Appellant was liable to reverse proportionate credit on the total trading turnover which has been worked out by the appellant as ₹ 31,89,728/- in our opinion has also to be deposited - Partial stay granted.

Summary

Issues:
1. Cenvat credit availed on common input services used for both manufacturing dutiable goods and providing exempted services.
2. Violation of Rule 6(1) and Rule 6(3) of the Cenvat Credit Rules, 2004.
3. Demand for payment due to irregular availing of credit and penalties imposed.
4. Interpretation of whether trading activity is an exempted service.
5. Liability for reversal of proportionate credit attributable to trading activity.

Analysis:

1. The appellant's business model involves the supply of goods for Power Plants, including both BHEL manufactured and Bought out goods. The appellant does not avail Cenvat Credit on the duty paid for Bought out items (BOI).

2. The department alleged that the appellant engaged in trading activity, an exempted service, and violated Rule 6(1) and Rule 6(3) of the Cenvat Credit Rules, 2004 by availing credit on common input services without maintaining separate accounts for dutiable and exempted goods/services.

3. Proceedings were initiated for the period from April 2007 to March 2012, demanding significant amounts due to irregular credit availing. Penalties were imposed under various sections/rules for non-compliance.

4. The appellant argued that trading cannot be considered an exempted service before March 2011. The Tribunal agreed, stating that prior to 2011, trading was not deemed a service, and the provisions of Rule 6(3) regarding payment percentages for exempted services did not apply. However, proportionate credit reversal for trading activity was required.

5. The Tribunal found that post-April 2011, the appellant reversed proportionate credit for trading activity and complied with Rule 6(3)(a). The appellant was directed to deposit amounts towards interest liability and proportionate credit attributable to trading activity for the period prior to April 2011 within a specified timeline to avoid further pre-deposit requirements and stay against recovery.

This detailed analysis of the judgment highlights the issues addressed, the arguments presented, and the Tribunal's decision regarding Cenvat credit availing, compliance with rules, and liability for payment.