2015 (10) TMI 979 - AT - Service Tax

Disallowance of CENVAT Credit on Input Services Service rendered is of sale of vehicles and repairs of the same - Appellant contended that they were not in obligation to maintain separate accounts as per Rule 6(2) as trading is not a service at all and there was no suppression of facts or willful mis-statement to evade duty. Held That - Trading activity not being a service at all, the appellant is not required to maintain separate accounts as per sub rule (2) of Rule 6 prior to 1.4.2011. So the view of department that the appellant is not entitled to credit for want of maintaining separate account is not correct. At the same time, credit cannot be allowed against trading as it is not either a service falling under Finance Act 1994, manufacture under the Central Excise Act, 1944. Therefore that portion of the input service availed for trading is not admissible. - Decision made in the case of Orion Appliances Ltd. Vs. Commissioner of Service Tax, Ahmedabad 2010 (5) TMI 85 - CESTAT, AHMEDABAD followed. Extended period of limitation - the issue reveals an interpretational issue - appellant was under the belief that trading not being a service at all there is no requirement to maintain separate accounts. - There is no suppression or wilful misstatement with intention to evade payment of duty thus extended period is not invokable Decided in favour of the Appellant.

Summary

Issues:
1. Disallowance of Cenvat Credit on input services for trading and taxable output services.
2. Requirement of maintaining separate accounts for input services used in common for trading and output services.
3. Applicability of extended period for raising demands.

Detailed Analysis:
1. The appeal challenges the disallowance of Cenvat Credit on input services used for both trading and taxable output services. The appellant, engaged in vehicle sales and services, faced a show cause notice for wrongly availing credit on mobile phone bills. The department contended that as the main activity was trading, the credit was inadmissible due to lack of separate accounts. The order confirmed the demand and penalty, upheld in appeal. The Tribunal now hears the case.
2. The department argued that mobile phones were mainly used for sales promotion, making trading the primary activity. The appellant maintained that trading was not an exempted service during the disputed period, hence separate accounts were unnecessary. The appellant claimed entitlement to full credit for service tax paid on mobile phones.
3. The Tribunal noted that trading, not classified as a service before 2011, did not require separate accounts. However, credit for trading activity was inadmissible. Referring to a similar case, the Tribunal suggested segregating credit quarterly based on standard accounting principles. The matter was remanded for quantifying the credit attributable to trading activity.
4. On the issue of limitation, the audit in 2008 led to a demand for the period 2005-2009. The department alleged suppression, while the appellant argued lack of willful misstatement. The Tribunal ruled that extended period invocation required evidence of intent to evade duty, which was absent in this case. Thus, the demand was time-barred, and the appeal was allowed, setting aside the impugned order.