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2018 (5) TMI 376 - AT - Service TaxCENVAT credit - trading activity - allegation in the SCN is that the appellants had wrongly used input service credit on services which were used both in respect of taxable services of authorized service station and for trading activities - Held that - Admittedly, the trading has been categorized as an exempted service only w.e.f. 01.04.2011. The trading activity not being a service at all, the appellants was not required to maintain separate account as the provisions of sub-rule 3 of the Rule 6 of the CCR, which could not be applied prior to 01.04.2011 - Also, credit could not be allowed against trading activities since it was neither a service falling under Finance Act, 1994, nor manufacture under the Central Excise Act, 1944. Therefore, the portion of input service credit availed for trading activity is not admissible - the credit would not be admissible as is attributable to the trading activity. Time limitation - penalty - Held that - the appellants have admittedly argued that the issue was clearly of interpretation, which was finally settled by way of insertion of explanation under N/N. 3/2011-CE (NT) dt. 01.03.2011 - extended period and penalty not invocable. Appeal allowed in part.
Issues Involved:
1. Eligibility of Cenvat credit for input services used for both taxable services and trading activities. 2. Applicability of extended period for demand of service tax. 3. Imposition of penalty under Section 78 of the Finance Act, 1994. Analysis: Issue 1: Eligibility of Cenvat credit for input services used for both taxable services and trading activities: The appellant was engaged in providing taxable services of 'Authorized Service Station' along with trading activities. The dispute arose regarding the admissibility of Cenvat credit for input services used for both taxable services and trading activities. The department contended that trading activity was categorized as an exempted service only from 01.04.2011 onwards. The Tribunal noted that trading activity, not being a service until then, did not require separate accounting as per the Cenvat Credit Rules. Therefore, the portion of input service credit attributable to trading activities was deemed inadmissible. The Tribunal referred to the case of Orion Appliances Ltd. where it was held that the appellant must segregate the quantum of input service attributable to trading activity and exclude it from availing credit. Consequently, the Tribunal upheld the disallowance of Cenvat credit for the trading activity. Issue 2: Applicability of extended period for demand of service tax: The appellant argued that the issue of interpretation regarding trading activity as a service was clarified only with the insertion of an explanation under Notification No. 3/2011-CE (NT) dated 01.03.2011. Citing precedents like Krishna Auto Sales, the Tribunal held that the extended period for demand was not applicable in cases where there was no suppression or willful misstatement to evade duty payment. The Tribunal emphasized that the absence of intent to evade service tax rendered the demand unsustainable and time-barred. Relying on the judgment of CST, New Delhi vs. AVL India Pvt. Ltd., the Tribunal concluded that the extended period was not invokable and penalty under Section 78 of the Finance Act, 1994 was not imposable. Issue 3: Imposition of penalty under Section 78 of the Finance Act, 1994: In line with the findings on the applicability of the extended period, the Tribunal determined that as there was no suppression, mis-declaration, or intent to evade service tax, the penalty under Section 78 was set aside. Consequently, the demand for service tax within the normal period was upheld along with interest, while the extended period was deemed not invokable, and the penalty under Section 78 was annulled. In conclusion, the appeal was disposed of with the above determinations, emphasizing the inadmissibility of Cenvat credit for trading activities, the inapplicability of the extended period for demand, and the non-imposition of penalty under Section 78 of the Finance Act, 1994.
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