2012 (7) TMI 134 - AT - Service Tax

Cenvat credit and trading of goods - applicants are manufacturing as well as trading in respect of motor vehicles assessee availed credit in respect of the service tax paid on common services which are in relation to the manufacturing activity as well as trading activity - contention of the applicants is that as per Rule 6 of the Cenvat Credit Rules, the trading activity cannot be considered as an exempted services therefore the demand is not sustainable Held that - trading activity is not an exempted service and credit is not admissible on the input services in respect of the trading activity. applicants are directed to deposit an amount of Rs.50 lakhs. - Pre-deposit of the remaining amount of duty, interest and penalty is waived.

Summary

Issues:
1. Waiver of pre-deposit of duty, interest, and penalty.
2. Entitlement of credit for service tax paid on services related to manufacturing and trading activities.
3. Time-barred demand due to suppression of facts.
4. Interpretation of Rule 6 of the Cenvat Credit Rules regarding trading activity.
5. Comparison with previous tribunal rulings on similar cases.

Analysis:
The applicants sought a waiver of pre-deposit of duty amounting to Rs.2.06 crores, interest, and penalty. They are engaged in manufacturing and trading of motor vehicles, paying service tax on taxable services related to these activities. The dispute arose as the Revenue contended that the applicants were availing credit for service tax paid on services related to both manufacturing and trading activities, which they believed was not permissible. The applicants argued that services like advertisement, management, repair, and business auxiliary services were common to both manufacturing and trading. They referenced a Stay Order and a Commissioner's order to support their stance.

Regarding the time-barred demand, the Revenue claimed suppression of facts justifying the extended period of limitation. However, the applicants argued that since their activities were known to the Revenue, there was no intent to evade duty, especially for the period covered by the first show-cause notice. The Revenue relied on the Cenvat Scheme, asserting that credit for service tax related to trading activities was not allowed. They cited a tribunal decision to support their position.

The Tribunal observed that the applicants were involved in both manufacturing and trading activities, availing credit for common services. The key contention revolved around the interpretation of Rule 6 of the Cenvat Credit Rules, with the applicants arguing that trading activity should not be considered exempted. The Tribunal distinguished the present case from a previous Stay Order, noting that the facts differed. Additionally, they referenced a tribunal decision that trading activity did not qualify as an exempted service, leading to the conclusion that the applicants had not established a prima facie case for a total waiver of duty. Consequently, the Tribunal directed the applicants to deposit Rs.50 lakhs within eight weeks, with the remaining amount of duty, interest, and penalty waived pending the appeal.

In conclusion, the judgment addressed the waiver of pre-deposit, entitlement to credit for service tax, the time-barred demand, interpretation of Rule 6, and comparisons with previous tribunal rulings. The decision balanced the arguments presented by both parties and provided a directive based on the specific circumstances of the case.