2012 (12) TMI 551 - AT - Central Excise

Waiver of pre-deposit appellant-company, registered as input service distributor, was distributing input services to various manufacturing units of theirs during the material period - they were also engaging themselves in a trading activity - Held that - It is not the case of the department that any duty or tax was payable on the trading activity - entire credit was utilized for payment of duty of excise on the dutiable final products - manufacturing units were lawfully utilizing the entire credit for payment of duty on the dutiable final products. Trading activity was not one of the taxable services under Section 65 of the Finance Act 1994 and, therefore, there was no question of payment of service tax on that activity by the manufacturing units of the company - manufacturing units could not have been expected to maintain separate accounts. The show-cause notices appear to disclose self-contradictory stand of the revenue with reference to the fact of this case - appellant also seems to have a good case on limitation against the impugned demands - in favor of assessee

Summary

Issues:
Stay applications seeking waiver and stay in respect of demands raised on 8 units of the appellant-company under Rule-14 of the CENVAT Credit Rules 2004, penalties imposed under Rules 15 and 15A of the CENVAT Credit Rules 2004, and the treatment of trading activity as an 'exempted service.'

Analysis:
1. The appellant, an input service distributor, distributed input services to various manufacturing units for CENVAT credit utilization. The department issued show-cause notices for recovery of CENVAT credit on input services used in trading activity, alleging lack of separate accounts for dutiable products and trading. The original authority passed orders against the units, upheld by the appellate authority, leading to present appeals and stay applications.

2. The appellant argued that trading activity was not a taxable service during the material period and all credit distributed was used for duty payment on pharmaceutical formulations. The department contended that distributing input services to units engaged in trading was impermissible, citing relevant case law.

3. The appellant further contended that trading activity was not an 'exempted service' under CENVAT Credit Rules 2004, even though the explanation to Rule 2(e) was added retrospectively. The department insisted on separate accounts for common input services for all manufacturing units.

4. The tribunal found the show-cause notices confusing, noting that the input service distributor lawfully distributed credits for dutiable final products, not trading. As trading was not a taxable service, no service tax was payable on it by the manufacturing units. The demands lacked a sustainable legal basis, and the appellant had a strong case on limitation. Consequently, the tribunal granted waiver of pre-deposit and stay of recovery for the adjudged dues.