2020 (2) TMI 1367 - AT - Service Tax

Reversal of CENVAT Credit - Appellant had deposited service tax amount - common input services used in taxable as well as exempt goods - Rule 6 of the Cenvat Credit Rules, 2004 - demand of service tax alongwith interest and penalty - HELD THAT - It is found from impugned order that the appellant had deposited the service tax amount in respect of the Cenvat credit taken for providing the trading activities. Since, the Cenvat credit amount towards trading of goods was paid by the appellant, it has to be construed that no Cenvat credit was at all taken by the appellant in respect of the common input services. Hon ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd. Vs. Collector of Central Excise, Nagpur 1995 (12) TMI 72 - SUPREME COURT have ruled that on reversal of credit, the assessee cannot be said to have taken credit of duty on the inputs utilized in the manufacture of exempted final products. However, the appellant is liable to compensate the government exchequer by paying the interest amount between the period of taking Cenvat credit on the common input services and actual payment of such cenvat amount into the Central Government account. The impugned order is set aside to the extent it has confirmed the service tax demand and imposition of penalties on the appellant - impugned order sustains, insofar as it has confirmed the interest demand on the appellant - the appeal is partly allowed.

Summary

Issues:
1. Whether trading activities qualify as a taxable service under the Finance Act, 1994.
2. Applicability of Rule 6 of the Cenvat Credit Rules, 2004 on maintaining separate accounts for common input services.
3. Retrospective application of amendments in the definition of exempted service.
4. Liability to pay interest on Cenvat credit for trading activities.

Analysis:
1. The appellant was engaged in providing taxable services and trading gas turbines. The department alleged that common input services were used for both taxable services and trading activities without maintaining separate accounts, leading to a cenvat demand. The appellant argued that trading is not a service and reversed the input service credit for trading. The Tribunal observed that no cenvat credit was taken for trading as the amount was paid, following the principle from the Chandrapur Magnet Wires case. The appellant was directed to pay interest for the period between taking the credit and actual payment.

2. The Tribunal found that the appellant had reversed the quantum of Cenvat credit related to trading activities, as per Rule 6 of the Cenvat Credit Rules, 2004. The appellant's compliance with this rule was crucial in determining the liability for cenvat credit on common input services. The reversal of credit for trading activities played a significant role in the final decision of the Tribunal.

3. The appellant contended that the amendment in the definition of exempted service was not applicable retrospectively. The Tribunal noted that the amendment came into effect from a specific date and could not be applied retroactively. This aspect was crucial in assessing the liability of the appellant for the period before the effective date of the amendment.

4. Regarding the liability to pay interest on Cenvat credit for trading activities, the Tribunal set aside the service tax demand and penalties but upheld the interest demand. The department was instructed to quantify the actual amount of interest payable by the appellant. This decision highlighted the importance of accurately determining the interest payable in such cases, based on the period between taking the credit and making the payment.

In conclusion, the Tribunal partially allowed the appeal, emphasizing the importance of maintaining separate accounts for common input services, the applicability of rules regarding reversals of credit, and the calculation of interest on Cenvat credit for trading activities. The judgment provided clarity on these issues and set a precedent for similar cases in the future.