2019 (11) TMI 677 - AT - Service Tax

CENVAT Credit - common input services utilised for taxable as well as exempt activity - reversal of proportionate credit - non-maintence of separate records - common input service tax credit availed by them in respect of Telephone and Renting of Immovable Property Service, since the consumables sold by the appellant while rendering service was alleged to be a trading activity - Rule 6 (3) of the CENVAT Credit Rules, 2004 - C.B.E.C. Circular No. 699/15/2003-CX - extended period of limitation. HELD THAT - The C.B.E.C. Circular No. 699/15/2003-CX has clarified the issue regarding Service Tax on Authorized Service Station during the course of providing service, wherein such ASS replaces engine oil, gear oil, coolants, etc., as per the request of the customer that the sale of consumable during the course of providing service is akin to sale of parts and accessories and therefore value of such consumables is not includible in the value of taxable services, provided value of such consumables is shown separately - however, The law underwent a change with effect from 20.06.2012 with the inclusion of exempted service under Rule 2 (e) of the CENVAT Credit Rules, 2004, which under its ambit covered trading of goods. The above Circular dated 05.03.2003 is therefore issued much earlier, obviously without having the benefit of the subsequent development. The issue on hand is squarely covered by the dictum of the Hon ble High Court in M/s. Lally Automobiles Pvt. Ltd. 2018 (7) TMI 1679 - DELHI HIGH COURT where it was held that . - there are no merit in the appellant s claim - appeal dismissed on this ground. Extended period of limitation - HELD THAT - It is a fact borne on record that the appellant itself has chosen to follow the procedure laid down under Rule 6 (3A) on and from 01.04.2014 by reversing the proportionate input service credit attributable to the exempted service of trading, which clearly shows the knowledge of the appellant as to the requirement of law, which was also done prior to the issuance of the Show Cause Notice - extended period rightly invoked. Appeal dismissed - decided against appellant.

Issues Involved:
1. Whether the appellant was required to reverse the proportionate common input service tax credit availed in respect of Telephone and Renting of Immovable Property Service as per Rule 6(3) of the CENVAT Credit Rules, 2004, since the consumables sold while rendering service were alleged to be a trading activity, which is an exempted service from April 2011.
2. Whether the Show Cause Notice issued in 2017 was beyond the normal period and hence unsustainable in the absence of suppression, fraud, etc.

Issue-wise Detailed Analysis:

1. Reversal of Proportionate Common Input Service Tax Credit:

The appellant, a registered Authorized Service Station (ASS), provided repair and maintenance services for TATA motor vehicles, including the use of consumables like engine oil and coolants. The appellant argued that these consumables were exclusively used during service provision and not sold independently, thus constituting a bundled service where repair and maintenance were predominant. The appellant contended that the sale of consumables was incidental to the service provision and should not be treated as a separate trading activity.

The appellant relied on the C.B.E.C. Circular No. 699/15/2003-CX dated 05.03.2003, which clarified that the sale of consumables during service provision was akin to the sale of parts and accessories, and the value of such consumables was not includible in the value of taxable services if shown separately.

However, the law changed with the inclusion of ‘exempted service’ under Rule 2(e) of the CENVAT Credit Rules, 2004, covering trading of goods from 20.06.2012. The Revenue argued that trading activity was brought within the ambit of "exempted service," requiring the appellant to reverse the proportionate CENVAT Credit availed on input services related to the exempted service.

The Hon’ble Delhi High Court in the case of M/s. Lally Automobiles Pvt. Ltd. held that activities not subjected to service tax, such as trading, could not claim input service tax credit. The court emphasized that assessees must segregate the quantum of input service attributable to trading activities and exclude it from the records maintained for availing credit.

Based on this precedent, the Tribunal found no merit in the appellant’s claim and dismissed this ground of the appeal.

2. Extended Period of Limitation:

The appellant contended that the Show Cause Notice issued in 2017 was beyond the normal period and could not be sustained in the absence of suppression, fraud, etc. The appellant argued that they did not take any credit of the input duty on consumables used/sold, thus challenging the allegation of treating their service as trading.

The Hon’ble Delhi High Court in the case of M/s. Lally Automobiles Pvt. Ltd. addressed the issue of limitation, stating that the lack of separate accounts for non-service tax leviable activities justified the invocation of the extended period of limitation. The court found that the assessee was aware of its trading activity and its non-taxable nature, thus supporting the Revenue’s case for invoking the extended period.

The Tribunal noted that the appellant had followed the procedure under Rule 6(3A) from 01.04.2014 by reversing the proportionate input service credit attributable to trading, indicating their knowledge of the legal requirement. Consequently, the Tribunal found the decision of the Hon’ble High Court of Judicature at Madras in the case of M/s. Salem Co-operative Sugar Mills Ltd. distinguishable and upheld the invocation of the extended period of limitation.

Conclusion:

The Tribunal dismissed the appeal, finding no merit in the appellant's contentions regarding both the reversal of proportionate common input service tax credit and the challenge to the extended period of limitation.

Order Pronouncement:

The order was pronounced in the open court on 13.11.2019.

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