2016 (5) TMI 135 - AT - Service Tax

Disallowance of Cenvat credit - Insurance Auxiliary Service - Availed Cenvat Credit in respect of certain service which is exclusively used for non taxable activity that is auction sale abandoned cargo and export of stuff cargo - Appellant contended that auction of abandoned goods being a trading activity is not a exempted service as the trading activity was covered under the definition of exempted service only w.e.f. 01.04.2011. Held that - even prior to 1.4.2011 since no service tax was payable on auction sale of abandoned cargo and export cargo, credit was not admissible on the input service used in such output activity as per the definition of input service. Therefore the Cenvat Credit on the input service used for auction sale of abandoned cargo and export cargo is not admissible to the appellant. Period of limitation - Demand of Service tax - Auction of sale of abandoned cargo - Held that - the demand proceeding on the auction of sale of abandoned cargo itself was alarm to the appellant that whether the Cenvat Credit should be availed on the input service used in the auction sale of abandoned cargo. Therefore despite knowing all the facts, the appellant kept on availing Cenvat Credit. As regard details of availment of Cenvat Credit on the nature of input service is not known to the department therefore it cannot be accepted from the department to issue show cause notice within 1year unless until the facts are unearthed. Therefore, as there is a suppression of fact on the part of the appellant, extended period in the first show cause notice was rightly invoked. Imposition of penalty under Section 78 - Held that - Section 78 penalty can be imposed only when there is a suppression of fact, fraud, collusion, willful misstatement etc. In the present case, the suppression of fact involved only in the first show cause notice. However, all the subsequent show cause notices were issued after knowing the facts involved in the first show cause notice, therefore in the subsequent show cause notices it cannot be said that there is suppression of fact on the part of the appellant, nor it can be said that the department had no knowledge about the fact of the case after issuance of first show cause notice. Therefore penalty under Section 78 is not sustainable corresponding to demand of Cenvat Credit for the period after September 2005 but sustainable for the period October 2003 to September 2005. - Decided partly in favour of appellant

Summary

Issues:
1. Disallowance of Cenvat Credit on input services used for auction of abandoned goods and export cargo.
2. Interpretation of law regarding the admissibility of Cenvat Credit on trading activity.
3. Time limitation for issuing show cause notice.
4. Imposition of penalty under Section 78 for suppression of facts.

Analysis:
1. The appellant availed Cenvat Credit for services used in non-taxable activities like auction of abandoned goods and export cargo. The Tribunal found that since these services were exclusively for non-taxable activities, the appellant was not entitled to Cenvat Credit. The argument that auction sales were considered exempted services post-2011 was rejected, as no service tax was payable on these activities before that date. Therefore, Cenvat Credit on these input services was deemed inadmissible.

2. The appellant argued that auction of abandoned goods was a trading activity subject to VAT, making it eligible for Cenvat Credit. However, the Tribunal held that since no service tax was payable on such activities, credit for input services used in them was not permissible. The Tribunal emphasized that the definition of input service required it to be used for providing output service, which was absent in this case.

3. Regarding the time limitation for issuing show cause notices, the appellant contended that the notice issued beyond one year was time-barred. The Tribunal disagreed, stating that the demand proceedings regarding Cenvat Credit were known to the appellant, indicating a suppression of facts. Therefore, the extended period for the first show cause notice was justified.

4. The imposition of penalty under Section 78 was disputed by the appellant, claiming no suppression of facts. The Tribunal differentiated between the first show cause notice and subsequent ones, concluding that only the initial notice involved suppression. Thus, penalties for periods post-September 2005 were dropped, while those for the earlier period were upheld. The Tribunal found the judgments cited by the appellant inapplicable to the present case due to differing facts.

In conclusion, the Tribunal partially allowed the appeals, sustaining the demand for Cenvat Credit, upholding penalties under Section 78 for the period up to September 2005, and dropping penalties for subsequent periods. The judgment highlighted the inadmissibility of Cenvat Credit for input services used in non-taxable activities and the importance of disclosing all relevant facts to avoid penalties for suppression of information.