2015 (6) TMI 79 - AT - Service Tax

CENVAT Credit - Trading activity - Revenue is of the view that the appellant is not eligible for credit of input services in proportion to the turnover of trading activities and that of manufacturing activities - Invocation of extended period of limitation - Held that - Eligibility of credit is defined in Rule 3 read with definition in Rule 2(l). It is only after that various questions in Rule 6, come into play. Rule 6(5) cannot be read in isolation but has to be read in the overall scheme of the things. - t trading was not a service and therefore, cannot be considered as an exempted service during the period prior to 1.4.2011 and the amended provision with effect from 1.4.2011 will not have retrospective effect Quantification of credit to reversed towards trading activity - period prior to 1.4.2011 - Held that - the credit of tax paid on such sales promotion activities should be apportioned with reference to the turnover of the manufactured cars and turnover of the traded cars. For example, if the turnover in particular period is say ₹ 1000 crore out of which turnover of ₹ 700 is pertaining to the indigenous cars and turnover of ₹ 300 crores pertains to the imported and traded cars then if the input credit of 10 crores is available then 7 crore should be considered for the manufactured cars in India and credit of ₹ 3 crore should be considered pertaining to imported and traded cars. Credit of input or input services is allowed only in order to eliminate the cascading effect of taxes. Thus, for taking credit, the trading activity should be taxable under Service Tax or Excise Law. The credit of input or input services is not allowed in respect of non-taxable activities. Here is a case where the services were used for trading activity. The appellant should have not taken the credit in the first instance itself, which was totally wrong on their part. They did not indicate in the returns that the credit relating to the trading activities was also being availed by them. Therefore, this is a clear case of suppression, and conduct of the appellant in this regard does not take him further and the extended period of limitation has been rightly invoked. No hesitation whatsoever in holding that taking credit in respect of services used in trading activity cannot be considered as bona fide at all. Just because the Government has put a trust in the trade and permitted them to take credit without any reference to tax authorities, it does not imply that the appellant can avail any credit whether permissible or not under the law and the later on, take the plea that the same is not recoverable on the grounds that the issue involves interpretation and hence the extended period of limitation cannot be applied. Undoubtedly, the returns filed by the appellant as ISD were not in accordance with law. The declaration made in the ST-3 returns was not correct. Hence the penalty imposed is upheld. - letter contains more than what was submitted during the course of hearing as also in the grounds of appeal filed before this Tribunal. As per Rule 10 of the CESTAT (Procedure) Rules, 1982, the appellant shall, except by the leave of the Tribunal, urge or be heard in support of any grounds not set forth in the memorandum of appeal. The procedure being followed by the learned counsel for the appellant is totally incorrect and we, therefore, refuse to discuss the submissions made in the said letter (even though we have gone through the said letter and find that the submissions made are devoid of even any consideration). - Decided against assessee.

Issues Involved:
1. Jurisdiction of the show cause notice.
2. Assessment of distribution of credit by the Input Service Distributor (ISD).
3. Applicability of Rule 6(5) of the Cenvat Credit Rules, 2004.
4. Recalculation of demand based on Rule 6(3D) effective from 1.4.2011.
5. Time-barred demand and extended period of limitation.
6. Penalty imposed under Rule 15A of the Cenvat Credit Rules.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Show Cause Notice:
The appellant contended that the show cause notice issued to the Pune factory was without jurisdiction and should have been issued to the ISD. The Tribunal rejected this contention, stating that both the ISD and the factory are located in the same premises and are under the jurisdiction of the same Commissioner. The two registrations, one for excise and the other as an ISD, do not make a difference as both registrations are for the same legal entity.

2. Assessment of Distribution of Credit by the ISD:
The appellant argued that credit cannot be denied unless the assessment of distribution of credit made at the ISD is set aside. The Tribunal noted that the ISD is not an assessee under the Service Tax Law and does not provide any service or pay any service tax as a provider of output service. Therefore, there is no question of assessment or self-assessment. The Tribunal rejected the appellant's contention, stating that the availment of credit and its distribution have been challenged in the present show cause notice, and the factory and ISD are one and the same legal entity.

3. Applicability of Rule 6(5) of the Cenvat Credit Rules, 2004:
The appellant submitted that credit relating to categories of services specified in Rule 6(5) should be allowed. The Tribunal rejected this contention, stating that Rule 6(5) cannot be read in isolation but has to be read in the overall scheme of the Cenvat Credit Rules, which are with reference to manufacturing activity or providing of output service, not trading activities.

4. Recalculation of Demand Based on Rule 6(3D) Effective from 1.4.2011:
The appellant argued that the demand needs to be recomputed based on the provisions of Rule 6(3D) made effective from 1.4.2011. The Tribunal, referring to the Mercedes Benz case, held that trading was not a service and cannot be considered as an exempted service before 1.4.2011. Therefore, the substantive provision itself did not exist before that date, and the formula prescribed under Rule 6(3D) cannot be applied retrospectively.

5. Time-barred Demand and Extended Period of Limitation:
The appellant contended that the demand is time-barred as the issue relates to the interpretation of statutory provisions and there was a bona fide belief that no cenvat credit was to be reversed for trading activity up to March 2011. The Tribunal rejected this contention, stating that the appellant did not indicate in the returns that the credit relating to trading activities was also being availed. This is a clear case of suppression, and the extended period of limitation has been rightly invoked.

6. Penalty Imposed Under Rule 15A of the Cenvat Credit Rules:
The Tribunal upheld the penalty of Rs. 5,000 imposed on the appellant as an ISD under Rule 15A of the Cenvat Credit Rules. The returns filed by the appellant as ISD were not in accordance with the law, and the declaration made in the ST-3 returns was not correct.

Conclusion:
The Tribunal dismissed both the appeals, finding no merit in the contentions raised by the appellant. The Tribunal upheld the demand, interest, and penalties imposed by the original authority.

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