2018 (10) TMI 167 - AT - Service Tax

CENVAT Credit - common input services used for providing the taxable output services as well as for trading activities undertaken by it - non-maintenance of separate records - sub-rule (3) of Rule 6 of the Cenvat Credit Rules, 2004 - Held that - On perusal of both the pre-amended and post amended definition of exempted service contained in Rule 2(e), there is no much of difference between the definitions inasmuch as the explanation added to amended definition with effect from 31.03.2011 has only clarified that exempted services includes trading . In interpreting the provisions of both pre and post amended definition of exempted service, the Hon ble Madras High Court in the case of Ruchika Global Interlinks v. CESTAT, Chennai 2017 (6) TMI 635 - MADRAS HIGH COURT have held that inclusion of trading in the explanation appended to Rule 2(e) was only clarificatory - thus, the grounds urged by Revenue that the trading was not considered as an exempted service during the disputed period, will not hold good and accordingly, cannot alter the findings recorded in the impugned order. Since, the assessee had reversed the credit attributable to input services used for the trading activities. Since such reversal is not in conformity with sub-rule (3) of Rule 6 of the Cenvat Credit Rules, 2004, we are of the view that the learned Commissioner has correctly interpreted the statutory provisions and confirmed the adjudged demand, to which the respondent was not legally entitled for CENVAT benefit - Since trading is not at all a taxable service as per the definition under the Finance Act, 1994, there was no occasion for availment of credit for such trading activity. Since the appellant had availed irregular CENVAT Credit on the input services used for trading activity, the intention of the assessee is manifest in defrauding the Government Revenue. Credit cannot be allowed - appeal allowed - decided in favor of Revenue.

Summary

Issues:
Appeal against impugned order dated 28.11.2014 passed by Commissioner of Service Tax, Mumbai.

Analysis:
The case involved an appeal by both the revenue and the assessee against the impugned order passed by the Commissioner of Service Tax, Mumbai. The assessee was engaged in providing taxable services under Maintenance or Repair services, Erection, Commissioning or Installation Service, and trading of telecom equipment. The department observed that the assessee availed common input services for both taxable output services and trading activities without maintaining separate records, leading to a Cenvat demand of ?1424.09 lakhs. The impugned order confirmed a CENVAT Credit demand of ?1,05,33,000/- along with penalties under the Finance Act, 1994. The assessee challenged the order, claiming the proceedings were time-barred and lacked elements of fraud for availing Cenvat benefit.

The Revenue contended that the benefit of a specific notification should not have been extended in the impugned order as it was amended after the relevant period. They argued that input services used for trading activities should not be eligible for Cenvat benefit as trading was not considered an exempted service during the disputed period.

The Tribunal found that no CENVAT Credit was admissible for input services used in trading activities as per the Cenvat statute, which allows credit only for taxable output services. The definition of exempted service was analyzed, with the Hon’ble Madras High Court clarifying that trading was included in the explanation to the definition. The Tribunal upheld the Commissioner's interpretation of the statutory provisions, noting the reversal of credit for trading activities was not in accordance with the rules. The department initiated proceedings upon discovering the irregular CENVAT Credit, leading to the conclusion that the proceedings were not time-barred. Since trading was not a taxable service, availing credit for trading activities indicated an intention to defraud the government revenue.

Ultimately, the Tribunal found no infirmity in the impugned order and dismissed both appeals filed by the Revenue and the assessee.