2024 (3) TMI 1040 - AT - Central Excise

CENVAT Credit - trading was exempted service - common input services used by the appellant towards manufacture of the goods, providing taxable service and also providing trading - HELD THAT - It can be seen that mention of trading as exempted service appeared in Chapter V of Finance Act, 1994 for the first time with effect from 01.04.2011. The present demand is for the period prior to 01.04.2011. Therefore, the definition of exempted services with effect from 01.04.2011 is not applicable to the period of the present show cause notice. During the period of present show cause notice, there was no whisper of trading in Chapter V of Finance Act, 1994 which deals with the provisions of law related to levy of service tax. There was no provision of law for disallowance of cenvat credit availed on service tax paid on input services which also were utilized for trading activity during the relevant period - part of the impugned order through which cenvat credit of Rs.1,97,62,992/- was disallowed is set aside. Once the said cenvat credit is held to be admissible, then there is no question of short payment of service tax as held in the impugned order. The impugned order set aside - appeal allowed.

Summary

Issues:
The issues involved in the judgment are the disallowance of cenvat credit on service tax paid on input services attributable to trading activity, the demand for short paid service tax, and the interpretation of the definition of exempted services u/s Rule 2(e) of Cenvat Credit Rules, 2004.

Disallowance of Cenvat Credit:
The appellant, engaged in manufacturing excisable goods and providing various services, availed cenvat credit on service tax paid on input services, including those used for trading activity. The Revenue alleged that trading was an exempted service during a specific period and issued a show cause notice for recovery of cenvat credit attributable to trading activity. The original authority disallowed a significant amount of cenvat credit, citing lack of proper documentation and common input services used for both manufacturing and trading. However, the appellant argued that prior to April 2011, the law did not consider trading as a service, and therefore, cenvat credit was rightfully availed. The Tribunal held that since trading was not mentioned as an exempted service before April 2011, the disallowance of cenvat credit on services used for trading activity was unjustified. Consequently, the impugned order disallowing cenvat credit was set aside.

Demand for Short Paid Service Tax:
The show cause notice also alleged short payment of service tax due to inadmissible cenvat credit utilized for payment of service tax on taxable output services. The appellant argued that since the cenvat credit was rightfully availed, there was no short payment of service tax. The Tribunal, after examining the definition of exempted services, concluded that trading was not considered an exempted service before April 2011. Therefore, the demand for short paid service tax was unsustainable, and the impugned order was set aside in this regard as well.

Interpretation of Exempted Services Definition:
The Tribunal highlighted the change in the definition of exempted services, specifically the inclusion of trading as an exempted service effective from April 2011. However, since the dispute pertained to a period before this amendment, the definition applicable during that time did not mention trading as an exempted service. Therefore, the Tribunal concluded that the disallowance of cenvat credit based on the updated definition was incorrect for the relevant period.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal of the appellant.