2015 (11) TMI 1045 - AT - Service Tax

Cenvat Credit - Authorized Service Station Service and Business Auxiliary Service - Trading activity - Penalty u/s 77 & 78 - Held that - the disputed input services have not been entirely used by the appellant for providing the taxable output services. Rather, some portion of the input services has been used for trading activity of selling cars. In my view, trading activity cannot be termed as a service . Accordingly, cenvat credit on input services attributable to trading activity will not be available to the appellant. In such eventuality, the only recourse left to the appellant is to segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availment of credit, which in the present case, admittedly has not been done by the appellant. - matter remanded back for computation of amount of credit to be reversed - Decided against the assessee. Levy of penalty - Appellant was not in a position to maintain separate records with regard use of input services for the taxable services and for trading activity (which was not an exempted service at the material time), I am of the view that there is no contravention of the Cenvat rules, and as such, imposition of penalty under Section 77 of the Finance Act, 1994 is not justified. Further, in absence of any specific findings by the authorities below regarding the involvement of the appellant in activities concerning fraud, collusion, willful mis-statement or suppression of fact etc., with intent to evade Government revenue, I am of the considered view that penalty imposed under Section 78 of the Act has no leg to stand for legal scrutiny. - Decided in favour of assessee.

Summary

Issues:
1. Disputed Cenvat credit on input services used for trading activity.
2. Interpretation of Rule 6 of the Cenvat Credit Rules, 2004.
3. Applicability of penalty under Sections 77 and 78 of the Finance Act, 1994.

Issue 1: Disputed Cenvat credit on input services used for trading activity:
During the relevant period, the appellant, engaged in trading and servicing of motor cars, availed Cenvat credit on input services for taxable output services. The Central Excise department disputed this credit, alleging that services were used for both taxable and exempted services. The appellant's appeal was dismissed, leading to the current appeal. The appellant argued that trading was not an exempted service before 01.04.2011. The respondent contended that trading was included in the definition of exempted service. The Tribunal held that Cenvat credit for trading activity was not permissible. The appellant was directed to segregate input services used for trading and reverse the credit accordingly.

Issue 2: Interpretation of Rule 6 of the Cenvat Credit Rules, 2004:
Rule 6 mandates separate accounts for input services used for taxable and exempted services. The appellant was found to have used input services for trading activity, not considered a service. The Tribunal ruled that Rule 6 did not apply to trading activities as they were neither taxable nor exempted services. The appellant was required to reverse the Cenvat credit taken for trading activities. The Tribunal referred to previous decisions to support this stance and remanded the matter for quantification of the service tax liability related to trading activity.

Issue 3: Applicability of penalty under Sections 77 and 78 of the Finance Act, 1994:
The Tribunal found no contravention of Cenvat rules due to the inability to maintain separate records for input services used in taxable services and trading activities. Consequently, penalties under Sections 77 and 78 were set aside. The Tribunal emphasized the absence of evidence of fraudulent intent to evade revenue. Therefore, penalties imposed by the authorities were deemed unjustified and were overturned.

In conclusion, the Tribunal set aside the impugned order, remanding the matter for quantification of service tax liability related to trading activity. Penalties under Sections 77 and 78 were revoked due to the lack of evidence of intentional wrongdoing. The appellant was given the opportunity for a personal hearing before any further orders were passed by the Original Authority.