2018 (3) TMI 1432 - AT - Service Tax

CENVAT credit - trading activity - non-maintenance of separate accounts - Held that - the appellant reversed the cenvat credit along with interest even before issue of show cause notice. As such, the matter could have been closed in terms of Section 73(3) of the Finance Act, 1994. It would appear that only because the credit period was spread over beyond the normal limitation, the Revenue took action of imposing penalty. There is a strong case for the appellant to have a reasonable cause of non-reversal of such disputed credit in time - penalty set aside - appeal allowed - decided in favor of appellant.

Issues:
1. Maintenance of separate accounts for input services under Rule 6 of Cenvat Credit Rules, 2004.
2. Imposition of penalty under Rule 15 of CCR, 2004 read with Section 78 of the Finance Act, 1994.
3. Interpretation of trading as a deemed exempted service.
4. Application of penalty in the absence of statutory provisions pre-1.4.2011.

Analysis:
1. The appellant, an Authorized dealer of Maruti vehicles, availed cenvat credit on inputs and input services from October 2008 to September 2011 without maintaining separate accounts for input services as required by Rule 6 of Cenvat Credit Rules, 2004. The Department demanded reversal of credit amounting to ?13,95,406 due to non-maintenance of separate accounts, and imposed a penalty under Rule 15 of CCR, 2004 read with Section 78 of the Finance Act, 1994.

2. The appellant contended that trading as a deemed exempted service was introduced only from 1.4.2011, and prior to that, there were no statutory deeming provisions or basis to consider trading activities as services. The appellant voluntarily reversed the credits of common input services with interest before the show cause notice was issued, but the Department proceeded with the penalty.

3. The issue of trading as applicable to Rule 6 was raised, emphasizing that the legal fiction of trading activities as services was created by law only from 1.4.2011. The appellant argued that there was no justification for imposing a penalty in this context.

4. The Revenue supported the lower authorities' findings, stating that even though the amendment regarding trading activities was effective from 1.4.2011, the appellant did not comply with the procedure until September 2011. The Revenue's stance was that the penalty was warranted due to the extended credit period beyond the normal limitation.

5. Upon review, the Tribunal noted that the appellant had already reversed the cenvat credit with interest before the show cause notice, which could have led to the matter being closed under Section 73(3) of the Finance Act, 1994. The Tribunal found that the appellant had a reasonable cause for the delayed reversal and, therefore, set aside the penalty imposed under Section 80 of the Finance Act, 1994.

6. Consequently, the Tribunal allowed the appeal to the extent of waiving the penalty, acknowledging the appellant's reasonable cause for the delayed reversal of disputed credit. The reversal of credit along with applicable interest was not contested, and the penalty under Section 80 of the Finance Act, 1994 was set aside.

This detailed analysis of the judgment highlights the key issues, arguments presented, and the Tribunal's decision, providing a comprehensive overview of the legal aspects involved in the case.

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