2013 (10) TMI 863 - HC - Service Tax

CENVAT credit - reversal of credit related to trading activity - Revenue was of the view that assesse had irregularly availed CENVAT credit given in respect of the exempted service held that - prima facie no serious infirmity in the process adopted by the adjudicating authority for arriving at the quantum of cenvat credit irregularly availed by the assesse which requires to be disallowed - it was quite clear that since trading activity was nothing but purchase and sales and was covered under state sales tax law, it may not be appropriate to call it a service. Therefore it had to be held that trading activity cannot be called a service and therefore it cannot be considered as an exempted service also adjudication order sets out the reasons for disregarding the assesse s assessment of the allocation of the cenvat credit availed between the taxable Business Auxiliary Service. - We prima facie find no serious infirmity in the process adopted by the adjudicating authority for arriving at the quantum of cenvat credit irregularly availed by the petitioner which requires to be disallowed. - 50% of demand ordered to be pre-deposited - stay granted partly.

Summary

Issues:
1. Interpretation of Cenvat credit rules regarding disallowance of credit for exempted services.
2. Applicability of clarificatory amendment in Rule 2(e) of the Cenvat Credit Rules, 2004.
3. Whether the appellant should deposit entire Cenvat credit disallowed with interest as a pre-condition for hearing the appeal.
4. Consideration of extended period of limitation by the tribunal.
5. Calculation of Cenvat credit disallowed and recoverable amount.
6. Fairness and equity in determining the amount to be deposited by the appellant.

Analysis:

1. The High Court considered the interpretation of Cenvat credit rules concerning the disallowance of credit for exempted services. The tribunal directed the appellant to deposit the entire Cenvat credit disallowed along with interest as a pre-condition for hearing the appeal.

2. The court examined the applicability of a clarificatory amendment in Rule 2(e) of the Cenvat Credit Rules, 2004. The appellant argued that the amendment was being wrongly interpreted as clarificatory and retrospective. The court noted conflicting judgments of the tribunal on this matter.

3. The tribunal's order highlighted a clarificatory amendment stating that Cenvat credit for exempted services cannot be set off from the service tax liability. The appellant contended that the rented premises were not exclusively used for selling vehicles but also for taxable services like vehicle servicing and repairs.

4. The court addressed the issue of the extended period of limitation, which was not considered when directing the deposit of the entire Cenvat credit and interest payable. The appellant raised concerns about the Revenue's entitlement to invoke the extended period of limitation.

5. Detailed calculations of the Cenvat credit disallowed and recoverable amount were presented, emphasizing the need to determine the fairness and equity in the amount to be deposited by the appellant. The court reviewed the findings of the adjudicating authority regarding the disallowance of Cenvat credit.

6. In light of the arguments and considerations, the High Court modified the impugned order, directing the appellant to deposit 50% of the demand without interest within a specified period. The court aimed to address the fairness and equity in determining the amount to be deposited by the appellant, ultimately disposing of the appeal and application for stay without costs.