2015 (6) TMI 271 - AT - Service Tax

Demand of Cenvat Credit - Business Auxiliary Services - Trading activity - Held that - The appellant is not an output service provider in respect of trading. - Mercedes Benz judgment 2014 (4) TMI 12 - CESTAT MUMBAI also held that the formula introduced in Rule 6 in 2011 cannot be applied retrospectively. Following this judgment, I hold that the amount of credit to be disallowed was correctly computed by the adjudicating authority. The reliance by the learned Counsel on the case of Sai Sathya Said Inst. (2003 (9) TMI 94 - SUPREME COURT OF INDIA) is inappropriate. The department is not imposing a condition which is not in the Rules. Department is merely saying that input credit is available under Service Tax law for providing output services in terms of the definition of input service in the Cenvat Credit Rules whereas the trading activity is outside the purview of service tax law. Bar of limitation - appellant have not declared in their ST-3 returns that the input service credit was used in relation to trading. This amounts to suppression of facts. Therefore, the extended period of limitation is correctly invoked as the appellants are following self assessment procedure and taking credit on their own against the provisions of law. Therefore, the present case is distinguishable from the case of Landis GYR Ltd. Reliance is placed on the case of Mercedes Benz (supra) as that judgment involved the same circumstances as far as the issue of time bar is concerned. Reducing penalty to 50% of amount confirmed under proviso to Section 78(1) is bad in law because the proviso became effective from 08/04/2011 whereas the period in the present case is from 2006-2007 to 2010-2011. I am also inclined to agree with the learned AR that the department was not put to notice on application of Rule 6(3A) by the Commissioner (Appeals) when the show-cause notice did not state this. I find that principles of natural justice have been violated. However, I have already decided the issue on merits in favour of Revenue. In view of applicability of extended time period for suppression of facts, I uphold the penalty equivalent to amount of Cenvat Credit demanded as held by the adjudicating authority. - Decided against assessee.

Issues Involved:
1. Demand and disallowance of Cenvat Credit.
2. Applicability of Rule 6(3A) of Cenvat Credit Rules.
3. Definition and treatment of trading activities under Service Tax law.
4. Time-bar and invocation of extended period of limitation.
5. Imposition and reduction of penalty under Section 78 of the Finance Act.

Detailed Analysis:

1. Demand and Disallowance of Cenvat Credit:
The appellant, engaged in providing "Business Auxiliary Services" and IT Software Services, as well as trading of scrap, availed Cenvat Credit of service tax paid on common services used for both output services and trading activities. The adjudicating authority disallowed the Cenvat Credit amounting to Rs. 21,05,690/- for the period April 2006 to March 2011, as trading is not a taxable activity under Central Excise or Service Tax law. The Commissioner (Appeals) reduced this amount to Rs. 6,97,822/- by adopting a formula introduced in Rule 6(3A) effective from 01/04/2011. The Tribunal upheld the disallowance of Cenvat Credit on input services used for trading activities, stating that trading is outside the purview of Service Tax law and cannot be considered an output service.

2. Applicability of Rule 6(3A) of Cenvat Credit Rules:
The Commissioner (Appeals) applied the formula from Rule 6(3A) retrospectively to compute the disallowed Cenvat Credit. The Tribunal, however, held that this formula could not be applied retrospectively, as ruled in the case of Mercedes Benz India Pvt. Ltd. The Tribunal concluded that the adjudicating authority correctly computed the disallowed credit without applying the retrospective formula.

3. Definition and Treatment of Trading Activities under Service Tax Law:
The appellant argued that trading was included as an exempted service only from 01/07/2012 and that prior to this, there was no provision for disallowing Cenvat Credit on input services used in trading activities. The Tribunal referred to the definition of input service under Rule 2(l) of the Cenvat Credit Rules, which includes services used for providing output services. Since trading is not an output service, the Tribunal ruled that credit cannot be allowed on input services used for trading.

4. Time-bar and Invocation of Extended Period of Limitation:
The appellant contended that the extended period of limitation should not be invoked as the department itself was unclear about the treatment of trading activities vis-a-vis Cenvat Credit before 2011. The Tribunal found that the appellant did not declare in their ST-3 returns that the input service credit was used in relation to trading, amounting to suppression of facts. Consequently, the Tribunal upheld the invocation of the extended period of limitation, distinguishing the present case from Landis + GYR Ltd.

5. Imposition and Reduction of Penalty under Section 78 of the Finance Act:
The Commissioner (Appeals) reduced the penalty to 50% of the amount of Cenvat Credit demanded, which the Revenue contested. The Tribunal agreed with the Revenue that reducing the penalty was incorrect as the proviso to Section 78(1) became effective from 08/04/2011, whereas the period in question was from 2006-2007 to 2010-2011. The Tribunal upheld the penalty equivalent to the amount of Cenvat Credit demanded, citing the applicability of the extended time period due to suppression of facts.

Conclusion:
The Tribunal dismissed the appeal filed by the appellant and allowed the Revenue's appeal, upholding the disallowance of Cenvat Credit, the invocation of the extended period of limitation, and the imposition of the penalty equivalent to the amount of Cenvat Credit demanded.

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