2018 (5) TMI 1419 - AT - Service Tax

CENVAT credit - input services used for providing taxable services as well as trading activity - Rule 6 (2) of Cenvat Credit Rules 2004 - Held that - Tribunal in case of Commissioner of Service Tax Delhi vs. Machine Tools India Pvt. Ltd. 2017 (8) TMI 833 - CESTAT NEW DELHI has held that on the trading activity which was not even considered even as exempted service prior to 01/04/2011 no Cenvat credit is available on any input service attributable to the trading activity at material time - the appellant is liable to reverse or pay back the input service credit attributable to the trading activity. Penalty u/s 78 - Held that - appellant were aware that Cenvat credit of input services can only be availed on the taxable output service and as the Trading Activity was not even a taxable activity they could have resisted from availing Cenvat credit of common service inputs - benefit of section 80 not allowed - penalty upheld. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Admissibility of Cenvat credit on input services used for trading activity.
2. Requirement to maintain separate accounts for input services used in providing exempted or non-taxable services.
3. Liability to reverse or pay back input service credit attributable to trading activity.
4. Imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:
1. The appellant, engaged in providing taxable services as an authorized dealer of motor vehicles, availed Cenvat credit on various input services. The Department contended that Cenvat credit is not admissible on input services used for exempted or non-taxable services. The Tribunal referred to precedents and held that no Cenvat credit is available on input services attributable to trading activity not considered as an exempted service before 01/04/2011. Consequently, the appellant was held liable to reverse or pay back input service credit related to trading activity.

2. The Tribunal emphasized the importance of maintaining separate accounts for input services used in providing exempted or non-taxable services. Failure to maintain such accounts may result in the payment of a specified amount or proportionate Cenvat credit attributable to exempted output services. The appellant's failure to maintain separate accounts led to the demand for payment of input service credits attributable to trading activity, as per the Cenvat Credit Rules, 2004.

3. Regarding the liability to reverse or pay back input service credit attributable to trading activity, the Tribunal upheld the order-in-appeal, affirming the demand for reversal of Cenvat credit on input services for trading goods. The appellant's argument that penalty under Section 78 of the Finance Act, 1994 should not be imposed was dismissed, as the appellant was aware of the inadmissibility of Cenvat credit on common service inputs for trading activity. The Tribunal did not find grounds for granting the benefit of Section 80 of the Finance Act, 1994.

4. The Tribunal concluded that there was no infirmity in the order passed by the Commissioner (Appeals) and dismissed the appellant's appeal. The imposition of penalty under Section 78 of the Finance Act, 1994 was upheld, with the appellant allowed to pay 25% of the imposed penalty within one month of receiving the order. The judgment was pronounced in open court on 22/05/2018.