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2017 (4) TMI 1174 - AT - Service TaxReversal of CENVAT credit - Rule 6(3A)b(iii) - credit availed on common input services used for taxable services as well as trading activities which are exempted services - Held that - prior to 01.04.2011 the formula given in Rule 6(3A)b(iii) cannot be applied to trading activities for the reason that these are not exempted services. Since a computing method has been introduced w.e.f. 01.04.2011 the same can be adopted to arrive at the proportionate credit that has to be reversed when common input services are used for taxable services and trading activities prior to 01.04.2011 also - applying the judgment in the case of M/s TFL Quinn India Pvt. Ltd. 2016 (6) TMI 230 - CESTAT HYDERABAD , the appellant is liable to pay/reverse the amount of credit arrived at by applying the formula brought forth by the amendment w.e.f. 01.04.2011 - the demand raised beyond the normal period is time barred and requires to be set aside - Taking into consideration that the period is transitional period and also because the appellant has reversed the amount, no penalty is to be imposed - appeal allowed - decided partly in favor of appellant.
Issues:
1. Availment of credit on common input services used for both taxable services and trading activities. 2. Applicability of Rule 6(3A)b(iii) formula for calculating demand. 3. Liability for reversal of credit on trading activities pre and post 01.04.2011. 4. Validity of demand raised beyond the normal period. 5. Imposition of penalty for the transitional period. Analysis: Issue 1: Availment of credit on common input services The case involved the appellant providing services of Beauty Parlour, Beauty Treatment, Health Club, and Fitness Center, using various taxable input services for both taxable services and trading activities. The Department contended that credit cannot be availed on common input services used for both taxable and exempted trading activities. The appellant argued that trading was not considered an exempted service before 01.04.2011 and relied on precedents to support their claim. Issue 2: Applicability of Rule 6(3A)b(iii) formula The appellant challenged the demand calculation based on Rule 6(3A)b(iii), asserting that the formula introduced from 01.04.2011 limited the demand for the period post that date. They argued that the demand for the period before April 2011 was time-barred and not sustainable due to the contentious nature of trading falling under exempted services. Issue 3: Liability for reversal of credit pre and post 01.04.2011 The Tribunal analyzed precedents and ruled that the formula in Rule 6(3A)b(iii) could not be applied to trading activities pre-01.04.2011 as they were not considered exempted services. The appellant was directed to reverse the amount of credit based on the formula introduced from 01.04.2011, requiring verification by the adjudicating authority. Issue 4: Validity of demand raised beyond the normal period Following precedents, the Tribunal held that the demand raised beyond the normal period was time-barred and set it aside, aligning with the discussion in the TFL Quinn India Pvt. Ltd. case regarding the application of the extended period. Issue 5: Imposition of penalty for the transitional period Considering the transitional period and the appellant's immediate reversal of credit for trading activities post the amendment on 01.04.2011, the Tribunal decided not to impose a penalty. However, the appellant was liable to pay interest on any further amount determined by the adjudicating authority. In conclusion, the appeal was partly allowed based on the above analysis, providing consequential reliefs as necessary.
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