2014 (5) TMI 418 - AT - Service Tax

CENVAT Credit - Cenvat credit of Service Tax on the value of the input services used for trading activity - Held that - Even if the services, in question, were common input services for manufacturing as well as trading activity and trading is treated as an exempted service, since Cenvat credit is available in respect of manufacture of dutiable final product or providing of taxable services, the Cenvat credit could be denied only in he proportion to the extent the input services had been used in or in relation to the trading activity. Moreover, when the appellant were filing returns in respect of their manufacturing activity as well as trading activity, we are of prima facie view that the department cannot be unaware of the fact that the appellant were engaged in both the activities from the same premises and the Department could not be unaware of the fact that they had availed Cenvat credit in respect of services which could be common inputs for both the activities. However, even if the extended period is not invoked, still the entire demand would not be time- barred. In view of this, this is not the case for total waiver as the appellant would not be eligible for Cenvat credit in respect of input services used in or in relation to trading activity. - Conditional stay granted.

Summary

Issues:
1. Eligibility of Cenvat credit on input services used for trading activity.
2. Application of Rule 6 of Cenvat Credit Rules.
3. Invocation of extended period under Section 73(1) of Finance Act, 1994.
4. Imposition of penalty under Rule 15(2) of Cenvat Credit Rules.

Eligibility of Cenvat Credit on Input Services for Trading Activity:
The appellant, engaged in manufacturing and trading activities, availed Cenvat credit on input services like CHA, Courier, Management Consultant, etc. The department contended that since these services were common for both activities, the appellant was not eligible for Cenvat credit on services used for trading. The Additional Commissioner confirmed a Cenvat credit demand of Rs. 23,32,348 along with interest and imposed a penalty. The Commissioner (Appeals) upheld this decision. The appellant argued that trading cannot be considered an exempted service, and even if services were common, the credit should not be entirely disallowed. The Tribunal held that credit could be denied only to the extent services were used for trading, directing the appellant to deposit Rs. 7,00,000 within eight weeks.

Application of Rule 6 of Cenvat Credit Rules:
The appellant contended that Rule 6 of Cenvat Credit Rules should not be applied as no finding was given that the input services were not used in manufacturing excisable goods. They argued that even if services were used for both activities, the credit should not be fully disallowed. The Tribunal observed that the department was aware of the appellant's dual activities and filing of returns for both. It held that the appellant could not claim credit for services used in or related to trading activity, directing a partial deposit to waive the remaining demand, interest, and penalty.

Invocation of Extended Period under Section 73(1) of Finance Act, 1994:
The appellant argued against the invocation of the extended period under Section 73(1) of the Finance Act, 1994, stating no suppression of relevant information occurred as they filed returns for both manufacturing and trading activities. The Tribunal noted that even without the extended period, the demand would not be time-barred. It directed the appellant to deposit a specific amount within a stipulated period to waive the remaining demand, interest, and penalty.

Imposition of Penalty under Rule 15(2) of Cenvat Credit Rules:
The appellant contested the imposition of penalty under Rule 15(2) of Cenvat Credit Rules, stating no suppression of information existed. The Tribunal considered the appellant's filing of returns for both activities and held that the department was aware of their operations. It directed a partial deposit to waive the penalty and remaining demand and interest until the appeal's disposal.