2017 (6) TMI 535 - AT - Service Tax

Reversal of CENVAT credit - common input services used for rendering services which are taxable as well as non taxable - Held that - the entire case of the appellant is that the trading activity was considered as an exempted service from 01.04.2011, prior to that these was clarity and it was not considered as an exempted service - similar issue decided in the case of M/s. FL Smidth Pvt. Ltd. Versus The Commissioner of Central Excise 2014 (12) TMI 699 - MADRAS HIGH COURT , where it was held that there is no manner of doubt that input service means goods which is used by the manufacturer directly or indirectly in relation to the manufacturing of final product and clearance of final product from the place of removal. Penalties - Held that - Invoking the provisions of Section 80 in this case is valid as there is a justifiable reason to hold a view that trading activity is not a exempted service at least prior to 01.04.2011 - penalty set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Reversal of CENVAT credit attributable to common input services consumed for both taxable and non-taxable services during a specific period.

Detailed Analysis:

1. Eligibility of CENVAT credit for common inputs used in trading activities:
The appellant argued that trading activities were not considered exempted services before a certain date, leading to confusion during the relevant period. The case revolved around the confusion regarding the treatment of trading activities as exempted services and the invocation of the extended period of limitation for confirming the CENVAT credit reversal. The appellant relied on various case laws to support their stance.

2. Interpretation of trading activities as exempted services:
The Departmental Representative cited a judgment in the case of FL Smidth Pvt. Ltd., highlighting that trading activities were considered exempted services even before a specific date. The issue centered on whether trading activities should be classified as exempted services retrospectively, considering the confusion prevailing before a certain legislative amendment.

3. Computation of CENVAT credit reversal and method of quantifying demand:
The Tribunal analyzed the eligibility of CENVAT credit for common inputs utilized in rendering dutiable output services and trading activities. The judgment highlighted the need for a specific method of computation for the reversal of CENVAT credit attributable to common inputs, emphasizing the application of Rule 2(l) of the CENVAT Credit Rules, 2004.

4. Penalties imposed and invocation of Section 80 of the Finance Act, 1994:
Regarding penalties, the Tribunal considered invoking Section 80 of the Finance Act, 1994, to set aside the penalties imposed. The decision was based on the existence of conflicting decisions favoring both the assessee and the Revenue regarding the classification of trading activities as exempted services. The Tribunal justified setting aside the penalties due to justifiable reasons supporting the view that trading activities were not exempted services, at least until a specific date.

5. Settlement of the issue by the High Court and impact on case laws:
The Tribunal noted that the issue in the appeal had been settled by the Hon'ble High Court, rendering the various case laws cited by the appellant irrelevant. The Tribunal emphasized that the decisions of the Tribunal could not carry the case further once the matter had been conclusively addressed by the High Court.

6. Final decision and disposal of the appeal:
After considering the arguments, case laws, and relevant provisions, the Tribunal disposed of the appeal by setting aside any penalties imposed and concluding that trading activities were not exempted services at least until a specific date. The decision was made in accordance with the provisions of Section 80 of the Finance Act, 1994.

The judgment addressed the complexities surrounding the treatment of trading activities as exempted services, the computation of CENVAT credit reversals, the impact of High Court decisions on case laws, and the appropriate application of penalties under relevant legal provisions.