2014 (2) TMI 904 - AT - Service Tax

Transaction amounts to exempted service or not - Separate accounts not maintained as per Rule 6(3) of the CCR, 2004 Waiver of Pre-deposit Held that - The demand has been worked out at 5% of the value of tubes and flaps sold by the appellant to the dealers - the very basis of the show-cause notice was that the trading activity involved in the transaction between the appellant and the dealers was an exempted service thus, the appellant has made out a strong prima facie case in their favour Pre-deposits waived till the disposal Stay granted.

Summary

Issues:
- Waiver and stay sought for the demanded amount under Rule 6(3) of the CENVAT Credit Rules, 2004
- Interpretation of Rule 6(3)(i) regarding obligation to maintain separate accounts
- Quantification of demand based on exempted service premise

Analysis:

1. Waiver and Stay Application:
The appellant filed an application seeking waiver and stay for the demanded amount of Rs.49,00,82,011/- along with an equal penalty imposed for the period from August 2006 to March 2011 under Rule 6(3) of the CENVAT Credit Rules, 2004. The appellant was involved in clearing tyres, tubes, and flaps to OE manufacturers and dealers during this period. The dispute arose due to the appellant not maintaining separate accounts for the transactions, leading to the demand by the authorities.

2. Interpretation of Rule 6(3)(i):
The legal ground argued by the appellant's counsel focused on Rule 6(3)(i) of the CENVAT Credit Rules, 2004. The rule states that manufacturers or service providers opting not to maintain separate accounts shall pay a specified percentage of the value of exempted goods or services. The appellant's counsel contended that the demand quantified by the adjudicating authority was misconceived. The demand was calculated at 5% of the value of tubes and flaps sold to dealers, whereas the trading activity was considered an exempted service. The counsel argued for a 6% quantification based on the nature of the trading activity as an exempted service.

3. Quantification of Demand Based on Exempted Service Premise:
The impugned demand was calculated at 5% of the value of tubes and flaps sold to dealers, despite the premise that the trading activity between the appellant and dealers was classified as an exempted service. The mismatch between the quantification of the demand and the legal provision was highlighted, indicating a discrepancy in the application of Rule 6(3)(i). The Tribunal acknowledged the strong prima facie case made by the appellant and granted waiver and stay without delving into other contentious issues raised during the proceedings.

In conclusion, the judgment by the Appellate Tribunal CESTAT Bangalore focused on the interpretation and application of Rule 6(3)(i) of the CENVAT Credit Rules, 2004 concerning the obligation to maintain separate accounts and the quantification of demand for exempted goods or services. The decision to grant waiver and stay was based on the mismatch between the demand calculation and the nature of the trading activity as an exempted service, highlighting the importance of accurate application of legal provisions in tax matters.