2016 (5) TMI 310 - AT - Service Tax

Disallowance of Cenvat credit and recovery of interest - Authorized Service Station, Business Auxiliary Services and Servicing of Motor Vehicles on which the service tax is paid - engaged in trading activity of passenger cars purchased from the manufacturer supplier on which no service tax is paid - availing Cenvat Credit on various common input service - Revenue contended that appellant were availing Cenvat Credit in respect of common services which are used for taxable services as well as for trading activity. Held that - the very identical issue has been considered by this Tribunal in the case of Badrika Motors Pvt. Ltd. Vs. Commissioner of C.Ex. & S. T., Bhopal 2014 (1) TMI 316 - CESTAT NEW DELHI and Commissioner of Central Excise, Thrupathi Vs. Shariff Motors 2009 (3) TMI 155 - CESTAT, Bangalore . In the case of Badrika Motors Pvt. Ltd., the Cenvat credit was denied on the GTA service on the ground that the GTA service has no nexus with the taxable service such as Authorized Service Station and Business Auxiliary Service. This Tribunal has held that no arithmetical correlation is required between the input and output services and accordingly the credit was allowed. In the case of Shariff Motors similar facts was involved that the assessee had availed the Cenvat credit in respect of GTA service which is used for transportation of motor cycles from factory to show room which were sold as such and credit was utilized for payment of service tax under authorized service station. The Division Bench has allowed the credit on GTA service. This decision has been upheld by the Hon ble Andhra Pradesh High Court. Therefore, in view of the above judgments, and since the identical facts are involved the appellant is not required to reverse the Cenvat Credit attributed to the trading activity of passenger cars. Period of limitation - Penalty under Section 78 - Held that - the Commissioner (Appeals) has conclusively held that in the absence of ingredients such as fraud, collusion, suppression of fact etc. with intent to evade payment of duty, the penalty is not imposable under Section 78. Considering this finding which equally applicable in case of invocation of extended period in terms of proviso to Section 73, the demand is not sustainable on the ground of time bar also. Therefore, the impugned order is not sustainable on merit as well as on limitation and the same is modified. - Decided in favour of appellant

Summary

Issues:
- Disallowance of Cenvat Credit
- Recovery of interest under Section 75 of the Act
- Penalty imposed under Section 78 of the Finance Act

Disallowance of Cenvat Credit:
The appellant, engaged in providing services and trading activities, faced disallowance of Cenvat Credit on trading activity of passenger cars. The appellant argued that prior to 1.4.2011, trading activity did not fall under exempted service, hence no provision for credit reversal existed. Citing relevant case laws, the appellant contended that the demand, covering the period up to 31.3.2011, was time-barred and lacked intention to evade tax. The Revenue, however, maintained that no credit could be allowed for common services used in both taxable and non-taxable activities. The Tribunal analyzed precedents like Badrika Motors and Shariff Motors, where credits were allowed despite mixed activities. Relying on these judgments, the Tribunal ruled in favor of the appellant, stating that the credit disallowance was not justified.

Recovery of Interest under Section 75:
The order-in-appeal upheld the recovery of interest under Section 75 of the Act. The appellant challenged this decision, emphasizing that the absence of intent to evade tax rendered the demand unsustainable. The Tribunal, considering the absence of fraud or collusion, concurred with the appellant's argument. The Tribunal highlighted that the penalty under Section 78 was dropped due to ambiguity in the law before 1.4.2011. This finding, unchallenged by the Revenue, led the Tribunal to conclude that the demand was not sustainable on the grounds of limitation. Consequently, the Tribunal modified the impugned order and allowed the appeal.

Penalty Imposed under Section 78 of the Finance Act:
The penalty imposed under Section 78 of the Finance Act was set aside by the Commissioner (Appeals-I) Central Excise, Pune. The appellant contended that the penalty was unwarranted due to the lack of intent to evade duty, as established by the Commissioner. The Tribunal, upholding the Commissioner's finding, deemed the penalty unjustifiable. The Tribunal's analysis, supported by precedents and the absence of challenged findings, led to the conclusion that the penalty under Section 78 was incorrectly imposed. As a result, the Tribunal allowed the appeal, emphasizing the absence of fraudulent intent and ambiguity in the law before 1.4.2011 as key factors in overturning the penalty decision.