2017 (12) TMI 27 - AT - Service Tax

CENVAT credit - trading activities - The case of the appellant is that trading cannot be considered as exempted service - Held that - A deemed fiction is apparently created by naming trading as an exempted service by way of explanation in Rule 2 of Cenvat Credit Rule w.e.f. 01.04.2011. Prior to creation of such fiction, there is no scope at all even to consider the trading activity to be covered under the credit scheme. After the explanation, the position is more clear to the effect that the trading activity can be considered as an exempted service for the operation of scheme under Cenvat Credit Rules - the appellants should not have availed credit for common input services which are used for taxable output service as well as trading activity, as it is imperative to identify and reverse that amount of credit attributable to the trading activity - decided against assessee. Time limitation - penalty - Held that - the trading is not at all an activity or a service covered by the Cenvat scheme prior to the introduction of clarificatory explanation - appellants have no reason to avail credit on services which they are fully aware were being used for trading activity also - there is no ground for such belief. Trading activity not being covered by the credit scheme itself during the material period, the appellants having availed the credit on such input services cannot contest the demand on limitation - penalty also upheld. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
Interpretation of law regarding the eligibility of Cenvat credit for trading activities and exempted services, applicability of Rule 6(3) of Cenvat Credit Rules, 2004, imposition of penalties, and the question of limitation.

Analysis:

1. Interpretation of Law on Cenvat Credit for Trading Activities:
The case involved a dispute regarding the eligibility of Cenvat credit for trading activities undertaken by the appellants. The original authority contended that trading, being an exempted service, is not liable to Service Tax and thus, credit taken on input services attributable to trading activities should be denied on a proportionate basis. The appellant argued that trading cannot be considered an exempted service before the introduction of the explanation in Rule 2 of Cenvat Credit Rules, effective from 01.04.2011. The Tribunal noted that trading is neither a taxable nor an exempted service before the clarification in the rule. Thus, the appellants should not have availed any credit on input services related to trading activities.

2. Applicability of Rule 6(3) of Cenvat Credit Rules, 2004:
The Tribunal examined the applicability of Rule 6(3) concerning common inputs used for taxable and exempted services. The original authority calculated the value of exempted service (trading) based on specific provisions introduced via notifications. The appellant contested this calculation, arguing that trading was not considered an exempted service before the rule amendment in 2011. However, the Tribunal upheld the authority's decision, emphasizing that trading activities were not covered under the Cenvat Credit Rules before the clarification, and thus, the credit should be reversed for the trading portion.

3. Imposition of Penalties and Limitation:
The appellant also challenged the imposition of penalties and the question of limitation. The Tribunal ruled that since trading was not covered under the Cenvat scheme before the rule clarification, the appellants could not claim ignorance or a bona fide belief to contest the demand on limitation. Therefore, the penalties imposed by the original authority were upheld, and the appeal was dismissed based on the findings regarding penalties and limitation.

In conclusion, the Tribunal dismissed the appeal, affirming the original authority's decision on the eligibility of Cenvat credit for trading activities, the application of Rule 6(3) of Cenvat Credit Rules, the imposition of penalties, and the question of limitation. The judgment highlighted the significance of the rule clarification in determining the eligibility of credit for activities not explicitly covered under the Cenvat scheme.