2018 (9) TMI 316 - AT - Service Tax

CENVAT Credit - trading activity - common input services availed for taxable service as well as for trading - non-maintenance of separate records - what is the amount that the appellant has to reverse when common input services have been used for taxable service as well as trading when separate accounts have not been maintained? Held that - With effect from 1.4.201, the position is very clear for the reason that trading has been made a deemed exempted service and Rule 6(3D)(c) of CENVAT Credit Rules clearly provided for the formula to arrive at the amount that has been reversed. However, for the period prior to 1.4.2011, there was much confusion as to whether trading is an exempted service or can be considered as service at all - In Ruchika Global Interlinks Vs. Commissioner of Central Excise 2017 (6) TMI 635 - MADRAS HIGH COURT , the jurisdictional High Court has held that the trading is to be considered as an exempted service prior to 1.4.2011 also. The appellant is required to reverse the credit as per the formula in Rule 6(3D)(c) of CENVAT Credit Rules, 2004 in respect of trading. However, the said amount has to be quantified - The appellant also contends that they have reversed the said amount pertaining to trading. This requires verification and for its quantification of the amounts that has to be reversed by the appellant, the matter is remanded. Appeal allowed by way of remand.

Summary

Issues:
- Eligibility of credit availed for common input services used for both taxable services and trading without separate accounts maintenance.

Analysis:
The appellants, engaged in providing taxable services and trading, availed common input services without maintaining separate accounts. The department contended that credit for trading is not eligible, proposing to disallow credit proportionate to the turnover of traded goods. The original authority confirmed the demand, interest, and penalties. The appellant argued they reversed the credit as per Rule 6(3A) and that the demand on traded goods turnover is unjust as VAT was already paid. They cited precedents like M/s. TFL Quinn India Pvt. Ltd. and Mercedes Benz India Pvt. Ltd. The AR supported the impugned order. The Tribunal analyzed the issue, noting that post-1.4.2011, trading was deemed exempted, with a clear formula for credit reversal. Pre-1.4.2011, confusion existed on trading's status. Referring to Ruchika Global Interlinks and TFL Quinn India cases, the Tribunal found the post-2011 formula applicable pre-2011. The appellant must reverse credit per Rule 6(3D)(c) for trading, requiring quantification by the adjudicating authority. Due to interpretational issues, no penalty was imposed.

The impugned order was set aside, remanding for quantification of credit reversal amount, with penalties lifted. The appellant is liable for interest, and the appeal was allowed for remand.