2016 (1) TMI 206 - AT - Service Tax

Waiver of pre-deposit - Cenvat Credit - input services used for providing output taxable services and trading activity - Explanation 2 to Rule 2(e) of CENVAT Credit Rules was added w.e.f. 01/04/2011 - Held that - As is clear from the above Explanation the same stands included in the definition of exempted services inasmuch as there were doubts in the field. The opening sentence of the said Explanation itself refers to the fact that the same is being added for removal of doubts. In such a scenario the findings of the Commissioner that the provisions of law were clear and unambiguous cannot be prima facie sustained. Apart from that we also note that the appellants have been filing regular returns indicating taxable services along with total credit so availed by them. As such at this prima facie stage we are of the view that the appellant has a good prima facie case on limitation. - stay granted.

Summary

Issues:
1. Taxability of trading activity under Business Auxiliary Service (BAS) category.
2. Denial of CENVAT credit on services availed for both taxable and exempted activities.
3. Limitation period for raising demand of tax.

Analysis:
1. The appellant, engaged in manufacturing ceramic tiles, had a unit involved in procuring orders and trading goods, categorized under BAS. The Revenue raised a demand of tax, contending that trading was an exempted service, leading to denial of CENVAT credit for the period 2006-07 to 2010-11.

2. The appellant argued confusion regarding the meaning of 'exempted services' during the relevant period. They claimed that since trading was not a taxable service, it was not considered exempted, hence no credit reversal was necessary. The appellant highlighted the clarification added to Rule 2(e) of CENVAT Credit Rules on 01/04/2011, stating that 'exempted services' include trading. The appellant contended that there was no mala fide intent to invoke the longer limitation period.

3. The Commissioner argued that the provisions of law were clear, and the appellant should have understood them. However, the Tribunal noted that the added Explanation explicitly clarified that trading is considered an exempted service due to doubts in the field. The Tribunal found that the appellant had a prima facie case on limitation, as they regularly filed returns indicating taxable services and total credits availed. Consequently, the stay petition was unconditionally allowed.

This judgment clarifies the taxability of trading activities under BAS, the denial of CENVAT credit for mixed activities, and the limitation period for raising tax demands. The Tribunal's decision was based on the interpretation of the law, the added Explanation to the CENVAT Credit Rules, and the appellant's compliance with filing returns.