2019 (5) TMI 1938 - AT - Service Tax

Reversal of CENVAT Credit - Ocean Freight - It appeared to revenue that Ocean Freight was not defined in taxable service under section 65 (105) of the Finance Act, 1962, till 30.06.2012, and from 1.7.2012, Ocean Freight appeared in negative list under section 66D(p) of the Finance Act, 1944, as a non-taxable service - HELD THAT - Rule 2 (e) of Cenvat Credit Rules Credit Rules, which defines exempted service, have been substituted from time to time and finally it was clarified by way of substitution, with effect from 1 March 2016, that exempted service does not include Ocean Freight. It is held that the said explanation and/or clarification relates back to the date since the said rule exists on the statute. Accordingly the show cause notice is not sustainable. It is also held that show cause notices issued are by way of change of opinion. Further there is no case made out of any suppression of facts or contumacious conduct, as the transactions were duly found recorded in the books of accounts maintained in the ordinary course of business. The appeal is allowed and the impugned order is set aside. The Appellant is entitled to consequential benefits in accordance with law. It is also held that under the facts and circumstances there being no allegation of taking of ineligible Cenvat Credit, it is held that Rule 14 of CCR is not attracted.

Issues:
1. Liability of reverse amount under rule 6(3) of CCR on ocean freight for a freight forwarder providing various services.
2. Applicability of service tax on ocean freight prior to 01.07.2012 and after the introduction of Negative list under section 66D of the Finance Act, 1994.
3. Interpretation of Rule 10 of Place of Provision of Service Rules 2012 regarding transportation of goods by vessel.
4. Adjudication of demand and penalty under Section 73 (1) of the Finance Act, 1994.
5. Interpretation of rule 2 (e) defining exempted service and its amendments.
6. Application of Rule 14 of CCR 2004 for recovery of Cenvat Credit.
7. Invoking the extended period for demand.
8. Change of opinion regarding show cause notices issued.

Analysis:
1. The appeal addressed the issue of whether a freight forwarder is liable to reverse an amount under rule 6(3) of CCR on ocean freight. The appellant provided various taxable services, including ocean freight, and availed Cenvat Credit on input services. The revenue contended that ocean freight was not taxable before 01.07.2012 and was exempted afterward. The appellant was asked to reverse an amount, leading to a demand under Section 73 (1) of the Finance Act, 1994.

2. The Tribunal analyzed the evolution of the definition of exempted service, particularly in relation to ocean freight. The appellant argued that the substitution of rule 2 (e) clarified that exempted service does not include ocean freight. Citing legal precedents, the Tribunal held that the clarification related back to the existing rule, making the show cause notice unsustainable. Additionally, the Tribunal found the notices to be a change of opinion without any suppression of facts or contumacious conduct.

3. The Tribunal also examined the application of Rule 14 of CCR 2004 for the recovery of Cenvat Credit. Relying on a division bench ruling, the appellant's counsel argued that Rule 14 is attracted only when Cenvat Credit is wrongly taken, which was not the case here. The Tribunal agreed, stating that Rule 14 was not applicable as there was no allegation of ineligible Cenvat Credit.

4. Ultimately, the Tribunal allowed the appeal, setting aside the impugned order and granting consequential benefits to the appellant. The Tribunal emphasized that there was no substantiated case of taking ineligible Cenvat Credit and that the extended period for demand was not justified. The appellant was relieved of the demand and penalty under Section 73 (1) of the Finance Act, 1994, based on the clarified definition of exempted service not including ocean freight.

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