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2019 (6) TMI 1327 - AT - Service TaxCENVAT Credit - common input services used for trading activities - non-maintenance of separate records - period 2008-09 to 2010-11 - whether the trading activities can be categorized as exempted service for the purpose of a decision regarding availment of Cenvat credit on the input services specified in sub-rule (5) of Rule 6 ibid? - No suppression of facts - extended period of limitation - HELD THAT - The phrase exempted services has been defined in Rule 2(e) ibid to mean taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under Section 66 of the Finance Act . The said definition was effective up to 31.03.2011. The Central Government vide Notification No. 3/2011-C.E. (N.T.) dated 01.03.2011 has made the Cenvat Credit (Amendment) Rules, 2011, effective from 01.04.2011. The effect of amendment, relevant for the present case, is that an explanation clause was appended to such definition, clarifying that for the removal of doubts, exempted services includes trading. The law is well settled that an amendment can be considered to be declaratory and clarificatory, only if, the statute itself expressly and unequivocally states so; on the contrary, if there is no such clear statement in the statute itself, the amendment shall not be considered to be merely declaratory or clarificatory and cannot operate with retrospective effect - the legislature had never intended to give effect to the notification dated 01.03.2011 with retrospective effect inasmuch as, in such an eventuality, the amending notification/Rules, 2011 would have made effective either from the date of publication of the said notification in the official gazette or from the date of enactment of the Cenvat Rules in 2004. Whether, such amendment in the statutory provisions is to be construed as retrospective in effect or prospective, in order to be given effect to? - HELD THAT - The law is amply clear that if a substantive law is introduced, the date of effect of the instrument through which the decision of legislation was conveyed should be considered as the relevant date, when the same was issued or published in the official gazette for the knowledge of the general public - thus the amendment to Rule 2(e) by Notification No. 3/2011-C.E.(N.T.) dated 01.03.2011 will have the prospective effect and cannot be applied retrospectively. Extended period of limitation - the department had issued the show cause notice on 23.10.2013, seeking for recovery of the irregularly availed Cenvat credit by the appellant during the period 2008-09 to 2010-11 - HELD THAT - In the proviso clause appended to Section 73(1) ibid, it has been mandated that where any service tax has not been levied or paid or has been short levied or short paid by reason of fraud; or collusion; or wilful misstatement; or suppression of facts; or contravention of the provisions of Chapter V or the rules made there under with intent to evade payment of service tax, instead of the period of one year, the show cause notice shall be issued within the period of five years - Admittedly, in this case, the show cause proceedings were initiated against the appellant beyond the normal period of limitation of one year. Thus, under such circumstances, it has to be ascertained whether the ingredients contained in the proviso clause are satisfied, justifying invocation of the extended period of limitation. It cannot be said that the appellant had suppressed the facts regarding availment of irregular credit, with the intent to defraud the Government revenue. Further, the issue with regard to interpretation of the amending definition of exempted service under the Cenvat statute, whether to be applicable prospectively or retrospectively, was highly debatable and there were divergent views in the judicial forum - In this case, on perusal of both the show cause notice and the impugned order, we do not find any justifiable reason being assigned by the department for invocation of the extended period of limitation. The appeal is allowed on the ground of limitation only.
Issues Involved:
1. Whether trading activities can be categorized as "exempted service" for the purpose of Cenvat credit on input services. 2. Whether the amendment to Rule 2(e) of the Cenvat Credit Rules, 2004, effective from 01.04.2011, has retrospective or prospective effect. 3. Whether the extended period of limitation for issuing the show cause notice is applicable in this case. Issue-wise Detailed Analysis: 1. Categorization of Trading Activities as "Exempted Service": The appellant engaged in trading activities and providing taxable services availed common input services for both activities. The department disputed the availment of Cenvat credit on the ground that trading was not considered an exempted service prior to 01.04.2011. The appellant argued that the amendment to the definition of "exempted services" was clarificatory and should apply retrospectively. However, the Tribunal noted that Rule 3 of the Cenvat Credit Rules, 2004, entitles a provider of taxable service to take Cenvat credit, but Rule 6 creates an embargo on credit for input services used for exempted services. The Tribunal concluded that trading activities cannot be categorized as "exempted service" for the purpose of Cenvat credit on input services specified in sub-rule (5) of Rule 6. 2. Retrospective or Prospective Effect of Amendment to Rule 2(e): The amendment to Rule 2(e) by Notification No. 3/2011-C.E. (N.T.) dated 01.03.2011 included trading as an exempted service effective from 01.04.2011. The Tribunal examined the legislative intent and noted that the notification did not state that the amendment was clarificatory or declaratory. The Tribunal emphasized that an amendment can be considered declaratory and clarificatory only if expressly stated in the statute. The Tribunal referred to the Supreme Court's judgment in Union of India Vs. Martin Lottery Agencies Ltd., which ruled that substantive law introduced by an explanation has no retrospective effect. Therefore, the Tribunal held that the amendment to Rule 2(e) has prospective effect and cannot be applied retrospectively. 3. Extended Period of Limitation: The show cause notice was issued on 23.10.2013 for the period 2008-09 to 2010-11, invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994. The Tribunal noted that the appellant had filed periodic ST-3 returns, reflecting the particulars of availment of Cenvat credit on the disputed input services. The Tribunal found that there was no suppression of facts or intent to defraud the Government revenue. The issue of whether the amendment to the definition of "exempted service" was applicable prospectively or retrospectively was highly debatable with divergent judicial views. The Tribunal concluded that in interpretational issues, the extended period of limitation cannot be invoked without proper substantiation. Therefore, the Tribunal held that the adjudged demands confirmed against the appellant cannot be sustained on the ground of limitation. Conclusion: The Tribunal modified the impugned order and allowed the appeal on the ground of limitation, holding that the amendment to Rule 2(e) has prospective effect and the extended period of limitation was not applicable in this case.
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