2018 (3) TMI 629 - AT - Service Tax

CENVAT credit - common input services which were used for trading activities as well as for providing output services - Since the credit availed on trading activity is not eligible for credit as well as for the reason that certain input services were used exclusively for trading purpose, two show cause notices dated 19.4.2012 and 12.10.2012 were issued for the period covering from April 2009 to March 2011 - Held that - It is very much clear from the facts of the case that the appellant have been maintaining separate records for the common inputs used in trading and taxable output service. This itself brings out the bonafide belief of the appellant that they were under the impression that their activity is an exempted service and would be able to avail credit by following the procedures under Rule 6 (2) and (3). Further, they have been filing service tax returns regularly and they have been subjected to periodical audit. The appellant cannot be saddled with intention to evade payment of service tax. There is no other evidence brought out by the department to conclude that the appellant is guilty of suppression of facts with intent to evade payment of service tax so as to invoke extended period of limitation - SCN is time-barred. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Availment of credit on common input services used for trading activities and output services.
2. Eligibility of credit on trading activities as exempted services.
3. Grounds of limitation in the case.
4. Suppression of facts with intent to evade payment of service tax.
5. Interpretation of provisions of law regarding credit availment.

Analysis:

Issue 1: Availment of credit on common input services
The appellants were registered for providing various output services and were availing credit on common input services used for both trading activities and output services. Show cause notices were issued for the period from April 2009 to March 2011, confirming the demand along with penalties. The appellant argued that they maintained separate accounts for common inputs and output services, believing trading activity to be an exempted service. They contended that there was no intention to evade payment, as the credit was availed based on a wrong interpretation of the law. The appellant's regular filing of service tax returns and lack of objections during audits supported their claim of no deliberate attempt to evade payment.

Issue 2: Eligibility of credit on trading activities
The appellant argued that prior to April 2011, there was confusion regarding whether trading activity could be considered an exempted service. They cited conflicting judgments and maintained that they believed in good faith that trading activity was exempted. The department contended that trading activity was not exempted before April 2011 and that the credit availed was against the law. The jurisdictional High Court's decision was referenced to support this argument.

Issue 3: Grounds of limitation
The main contention raised by the appellant was regarding the period of limitation. Show cause notices were issued for a period from April 2009 to March 2011, invoking the extended period of limitation. The appellant argued that during this period, there were conflicting decisions on the exempted status of trading activities. They maintained that their separate record-keeping and regular filing of returns demonstrated their bona fide belief in the exemption status, thus challenging the invocation of the extended limitation period.

Issue 4: Suppression of facts
The department argued that there was a clear suppression of facts by the appellant with the intent to evade payment of service tax, justifying the invocation of the extended limitation period. However, the appellant's diligent record-keeping, regular filing of returns, and lack of objections during audits were cited as evidence against the department's claim of suppression of facts.

Issue 5: Interpretation of provisions of law
The Tribunal concluded that the show cause notice was time-barred, setting aside the impugned order and allowing the appeals on the ground of limitation. The Tribunal emphasized that the appellant's actions, including maintaining separate records and regular compliance, did not indicate any deliberate attempt to evade payment of service tax. The lack of evidence supporting the department's claim of suppression of facts led to the decision in favor of the appellant.