2020 (1) TMI 898 - AT - Service Tax

CENVAT Credit - exempt services - agency commission - trading activity - Services covered by Rule 6(5) of CCR, 2004 - services rendered in Jammu Kashmir - recovery u/r 14 of the Cenvat Credit Rules, 2004 read with Rule 6(3A) of the Cenvat Credit Rules, 2004 and Section 73(1) of the Finance Act, 1994. CENVAT Credit on agency commission - HELD THAT - In respect of the same appellant for a different period it has been held by this Bench that they are not entitled to cenvat credit on the agency commission because the commissions has been paid for procuring orders and not in relation to rendering the service - the appellant is not entitled to cenvat credit on the agency commission paid for procuring order either for selling the goods or for procuring orders for AMC. Trading activity being an exempted service only post 01.04.2011 - HELD THAT - T his issue has been settled by the Hon ble High Court of Madras in the case of M/S. RUCHIKA GLOBAL INTERLINKS VERSUS THE CUSTOMS EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, SOUTH REGIONAL BENCH CHENNAI AND THE COMMISSIONER OF SERVICE TAX, CHENNAI 2017 (6) TMI 635 - MADRAS HIGH COURT and M/S. FL SMIDTH PVT. LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE 2014 (12) TMI 699 - MADRAS HIGH COURT that either before 01.04.2011 or after this state trading activity is an exempted service. The amendment made with effect from 01.04.2011 specifying trading activity as an exempted service will not make a difference - Credit cannot be allowed. Services covered by Rule 6(5) of CCR, 2004 - HELD THAT - These are eligible for cenvat credit notwithstanding Rule 6(1) and Rule 6(2) of the CCR, 2004 as the rule position stood during the relevant period. If any of the services in question were covered by Rule 6(5), theappellant is entitled to the full amount of cenvat credit even if the services were partly used for rendering exempted services also - this is also a matter which is fit to be remanded to the original authority for verification - matter on remand. Services rendered in Jammu Kashmir - HELD THAT - The relevant period in this case is prior to 1-4-2011 when the definition of exempted service under Rule 2(e) of CENVAT Credit Rules, 2004 included any service on which no service tax could be levied under the provisions of Chapter V of the Finance Act, 1994. Since no service tax could be levied on any service rendered in Jammu and Kashmir under this Act, it squarely falls under the definition of exempted service . When there is a statutory definition which is clear and unambiguous, it must be applied regardless of the consequences - the services rendered by the appellant in J K are exempted services and must be treated as such while computing the ineligible/reversible CENVAT credit under Rule 6 (3) of CCR, 2004. The appeal is disposed of by way of remand to the original authority with a direction to re-determine the amount of cenvat credit to be reversed, interest and imposition of penalty if any, after following principles of natural justice.

Summary

Issues Involved:
1. Disallowance of CENVAT credit on agency commission.
2. Demand for reversal of proportionate amount of CENVAT credit on common input services.
3. Eligibility of CENVAT credit for services covered by Rule 6(5) of CENVAT Credit Rules, 2004.
4. Treatment of services rendered in Jammu & Kashmir.
5. Classification of trading as an exempted service.
6. Imposition of penalty and demand for interest.

Detailed Analysis:

1. Disallowance of CENVAT Credit on Agency Commission:
The appellant contested the disallowance of CENVAT credit amounting to ?10,60,865/- on agency commission, arguing that the commission was for procuring orders for both trading goods and Annual Maintenance Contracts (AMCs). The tribunal referred to a previous decision involving the same appellant and the Gujarat High Court's judgment in Cadilla Healthcare Ltd., which held that services rendered in procurement of business cannot be considered as services rendered in relation to business activity. Consequently, the tribunal upheld the disallowance of CENVAT credit on agency commission for both trading goods and AMCs.

2. Demand for Reversal of Proportionate Amount of CENVAT Credit on Common Input Services:
The appellant argued that the impugned order incorrectly classified all input services as common input services, including those used exclusively for taxable services. The tribunal agreed that this needed verification and remanded the matter to the adjudicating authority for re-computation, excluding input services used exclusively for taxable services.

3. Eligibility of CENVAT Credit for Services Covered by Rule 6(5) of CENVAT Credit Rules, 2004:
The appellant contended that certain services covered by Rule 6(5) should be eligible for full CENVAT credit unless used exclusively for exempted services. The tribunal acknowledged this argument, noting that Rule 6(5) prevails over Rule 6(1) and Rule 6(2). The matter was remanded for verification to ensure services covered by Rule 6(5) are correctly accounted for.

4. Treatment of Services Rendered in Jammu & Kashmir:
The appellant argued that services rendered in Jammu & Kashmir should not be treated as exempted services since Chapter V of the Finance Act, 1994 does not apply to Jammu & Kashmir. The tribunal examined the definition of "exempted service" under Rule 2(e) of the CENVAT Credit Rules, 2004, concluding that services rendered in Jammu & Kashmir are indeed exempted services as per the statutory definition applicable during the relevant period. This necessitated treating such services as exempted while computing the ineligible/reversible CENVAT credit.

5. Classification of Trading as an Exempted Service:
The appellant argued that trading should not be considered an exempted service for the period prior to 01.04.2011. The tribunal referred to the Madras High Court's judgments in Ruchika Global Interlinks and FL Smidth Pvt Ltd., which held that trading is an exempted service both before and after 01.04.2011. Consequently, the tribunal rejected the appellant's argument and upheld the classification of trading as an exempted service.

6. Imposition of Penalty and Demand for Interest:
The tribunal directed the adjudicating authority to re-determine the amount of CENVAT credit to be reversed, the interest thereon, and the appropriate penalty, considering the above findings and following the principles of natural justice.

Conclusion:
The appeal was disposed of by remanding the case to the original authority with instructions to re-determine the amount of CENVAT credit to be reversed, interest, and penalty, ensuring compliance with the tribunal's findings and principles of natural justice.