2014 (4) TMI 300 - AT - Central Excise

CENVAT Credit - input services - GTA service - sale of parts and accessories of tyres as such - reversal of proportionate credit - Suppression of facts - Mis declaration - Malafide intention - Held that - Proportionate credit attributable to trading arrived at in accordance with standard accounting principles is required to be reversed. - Decided against the assessee. Extended period of limitation - If the GTA service credit entry is reflected in return and the appellants have specifically written about their trading activity, it cannot be said that they have suppressed the facts. As regards miss-declaration, having regard to the size of the appellant and the fact that the appellant never took Cenvat credit of service tax attributable to GTA service for inward transportation of tubes and flaps (as stated by learned counsel in reply to query from the Bench), the fact that tubes and flaps were inserted into tyres and the weight of tubes and flaps compared to the weight of tyres is comparatively less, it cannot be said that there was miss-declaration with intention to evade duty - appellant is directed to proportionately reverse the Cenvat credit attributable to service tax paid on GTA service utilized in respect of tubes and flaps inserted into tyres in accordance with standard accounting principles within the normal period of limitation - Decided in favour of assessee.

Summary

Issues:
1. Whether the appellant should have maintained separate accounts for tubes and flaps cleared to dealers in the replacement market.
2. Whether trading activity can be considered as a service and if it falls under exempted services.
3. Whether the appellant is eligible for proportionate credit for services utilized in trading activities.
4. Whether the extended period for invoking the demand is justified.
5. Whether the penalty should be imposed.

Issue 1: Separate Accounts Requirement
The appellant, a tyre manufacturer, cleared tubes and flaps to OEMs and dealers, taking Cenvat credit for duty paid on tubes and flaps for Motor Vehicles Manufacturers but not for the replacement market. The demand was made based on the lack of separate accounts for input services. The Tribunal found that the appellant should proportionately reverse the Cenvat credit for service tax paid on GTA service used for tubes and flaps within the normal limitation period.

Issue 2: Trading Activity as a Service
The appellant argued that trading activity is not a service and cannot be considered an exempted service. They relied on precedents to support their position. The Tribunal considered the definition of exempted services during the relevant period and found that the trading activity could not be treated as a service. The demand based on Rule 6(3) of the Cenvat Credit Rules was deemed inapplicable.

Issue 3: Proportionate Credit Eligibility
The Revenue contended that the appellant is not entitled to proportionate credit for services used in trading activities. The Tribunal referenced previous decisions and concluded that proportionate credit attributable to trading, following standard accounting principles, must be reversed.

Issue 4: Justification for Extended Period
The appellant argued against the invocation of the extended period for demand, citing a letter provided to the department in 2004 detailing their activities. They maintained that there was no intention to suppress facts or evade duty. The Tribunal agreed, noting that the demand should be limited to the normal period, thus negating the need for a penalty.

Issue 5: Penalty Imposition
Given the findings on the demand and the absence of intentional misrepresentation or suppression, the Tribunal ruled that the penalty was unnecessary. The appellant was directed to reverse the Cenvat credit within the normal limitation period, and the appeal was decided accordingly.

This detailed analysis of the judgment covers each issue involved, outlining the arguments presented by both parties and the Tribunal's conclusions on each point.