2016 (11) TMI 1106 - AT - Central Excise

Cenvat credit relating to common input services - Large Tax Payer Unit - Input Service Distributor - trading activity - Held that - the Tribunal has come to the conclusion that as regards the issue as to whether trading activity can be called as a service, it is quite clear that since the trading activity is nothing but purchase and sales and is covered under sale tax law, it may not be appropriate to call it a service. Therefore, it has to be held that trading activity cannot be called a service and therefore, it cannot be considered as an exempted service also. It is pertinent to note that the trading activity has been specifically covered as exempted service with effect from 1.4.2011. This amendment in the definition in Rule 2(e) was brought into effect on 1.4.2011 and as per the learned A.R., this amendment is only a clarification and is applicable prospectively. Further this issue whether the appellant is entitled to take Cenvat credit with regard to common input service attributable to trading activity has been recently considered by the Hon ble High Court of Madras in the case of M/s F L Smidth Pvt. Ltd. Vs. C.C.E. 2014 (12) TMI 699 - MADRAS HIGH COURT where in it was held that On an understanding of the Rule 2(l) of the Cenvat Credit Rules, there is no manner of doubt that input service means goods which is used by the manufacturer directly or indirectly in relation to the manufacturing of final product and clearance of final product from the place of removal. In the present case, the Department has allowed cenvat credit in respect of the value of goods amounting to ₹ 5.41 crores and denied for the balance. We find no error in such determination, which is in consonance with Rule 2(l) of the Cenvat Credit Rules. There is no infirmity in the impugned orders whereby the Commissioner (Appeals) has denied the Cenvat credit of common input services attributable to trading activity by holding that the trading activity is exempted service even prior to 1.4.2011. Further, as far as invoking extended period of limitation and imposition of mandatory penalty, I am of the considered view that since the appellants have not declared in their ST3 Returns that input service credit was used in relation to trading activity. This amounts to suppression of facts and therefore, the extended period of limitation is correctly invoked as the appellants are following the self assessment procedure and are taking credit on their own. CENAVT credit not allowed - extended period of limitation invoked - appeal disposed off - decided against appellant-assessee.

Issues Involved:
1. Whether trading activity can be considered as a service.
2. Applicability of Rule 6 of the Cenvat Credit Rules, 2002 and Service Tax Credit Rules, 2002 to trading activities.
3. Entitlement to Cenvat credit for common input services attributable to trading activity.
4. Retrospective application of amendments to Rule 2(e) of the Cenvat Credit Rules.
5. Validity of extended period of limitation and imposition of mandatory penalty.

Issue-wise Detailed Analysis:

1. Whether trading activity can be considered as a service:
The Tribunal concluded that trading activity, being essentially purchase and sale covered under sales tax law, cannot be considered a service. It was noted that trading activity was explicitly included as an exempted service only from 1.4.2011, and thus, prior to this date, it could not be considered an exempted service.

2. Applicability of Rule 6 of the Cenvat Credit Rules, 2002 and Service Tax Credit Rules, 2002 to trading activities:
The Tribunal referenced the case of M/s Orion Appliances Ltd. Vs. CST, Ahmedabad, which determined that Rule 6 applies when input services are used for both trading activity and taxable services. Since trading was not considered a service, Rule 6 was deemed inapplicable for the period before 1.4.2011.

3. Entitlement to Cenvat credit for common input services attributable to trading activity:
The Tribunal affirmed that the appellant was not entitled to Cenvat credit for common input services attributable to trading activity. This decision was supported by the Hon’ble High Court of Madras in the case of M/s FLSmidth Pvt. Ltd. Vs. C.C.E., which held that trading activity should be treated as an exempted service even before 1.4.2011.

4. Retrospective application of amendments to Rule 2(e) of the Cenvat Credit Rules:
The appellant contended that the amendment to Rule 2(e) effective from 1.4.2011, which included trading as an exempted service, was prospective. The Tribunal agreed that the amendment was prospective and not retrospective. However, it was emphasized that prior to this amendment, trading was neither a manufacturing activity nor a service, and thus, no Cenvat credit was allowable for input services used in trading.

5. Validity of extended period of limitation and imposition of mandatory penalty:
The Tribunal upheld the invocation of the extended period of limitation and imposition of mandatory penalty. It was noted that the appellant did not declare in their ST3 Returns that input service credit was used for trading activity, amounting to suppression of facts. This justified the extended period of limitation and the penalties imposed.

Conclusion:
The Tribunal dismissed all 21 appeals, upholding the impugned orders that denied Cenvat credit for common input services attributable to trading activity and affirmed the penalties imposed. The trading activity was considered an exempted service even prior to 1.4.2011, and the extended period of limitation was correctly invoked due to suppression of facts by the appellants.

← Previous Next →