2018 (9) TMI 295 - AT - Service Tax

CENVAT Credit - input services - Department was of the view that the credit availed on the above input services is not eligible for the reason that the said input services are not used for providing output services - Scope of SCN - Held that - In the instant case, what is alleged in the show cause notice is that as per Rule 2(l) of the CENVAT Credit Rules, 2004, input service means any service used for providing output service . As trading activity undertaken by the appellant is not taxable service, hence the appellant is not eligible to avail credit on the alleged / impugned input service. This being so, the appellants have clearly fallen foul of Rule 3 of the CENVAT Credit Rules, 2004 since that is the particular provision which lays down the types of duties or taxes or cesses suffered on input, input services etc. which alone can be availed as CENVAT credit. In the present case, only Rule 3 and Rule 6 has not been invoked. When credit is not admissible under Rule 3, the appellant cannot content that Rule 6 ought to have invoked and that trading is held to be exempted service prior to 1.4.2011. The appellant cannot blow both hot and cold. Wrong utilization of CENVAT credit - Demand of ₹ 35,91,928/- with interest - Held that - Since this being only a part of the total credit amount of ₹ 3,22,07,534/-, the demand of which has already been upheld, it would cause double jeopardy, hence demand of ₹ 35,91,928/-, along with interest, will become a unjustifiable demand and therefore set aside. Penalty u/s 78 - Held that - This issue involves interpretation whether the availment of impugned credits are in order or otherwise - penalties not warranted and is set aside. The impugned order is modified to the extent of setting aside the demand of ₹ 35,91,928/- and the penalty imposed under section78 of the Finance Act, 1994 without disturbing the remaining part of the impugned order except penalty - appeal allowed in part.

Summary

Issues Involved:
1. Eligibility of CENVAT credit on input services related to trading activity.
2. Classification of trading as an exempted service prior to 1.4.2011.
3. Demand of wrongly availed CENVAT credit and interest.
4. Demand of short-paid duty due to wrong utilization of CENVAT credit.
5. Imposition of penalties under section 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Eligibility of CENVAT Credit on Input Services Related to Trading Activity:
The appellants are engaged in providing various services including consulting engineer service and were found to have availed CENVAT credit on input services such as commission paid to agents, bank guarantees, clearing and forwarding charges, cargo handling, and other related services. The department contended that these input services were used for trading activities, not for providing taxable services, making the credit ineligible under Rule 3 of the CENVAT Credit Rules, 2004. The Tribunal upheld this view, stating that trading activities do not qualify for CENVAT credit as they are not taxable services.

2. Classification of Trading as an Exempted Service Prior to 1.4.2011:
The appellant argued that trading should be considered an exempted service even before 1.4.2011, relying on the judgment in Ruchika Global Interlinks. However, the Tribunal clarified that the High Court's decision in Ruchika Global Interlinks addressed apportionment under Rule 6(3)(c) and did not support the claim that trading was an exempted service prior to 1.4.2011. The Tribunal concluded that since trading was not deemed an exempted service before 1.4.2011, the appellant's argument was not tenable.

3. Demand of Wrongly Availed CENVAT Credit and Interest:
The show cause notice demanded recovery of ?3,22,07,534/- for wrongly availed CENVAT credit on input services related to trading activities. The Tribunal found no infirmity in the demand, affirming that the credit was availed in contravention of Rule 3 of the CENVAT Credit Rules, 2004, and upheld the recovery along with interest.

4. Demand of Short-Paid Duty Due to Wrong Utilization of CENVAT Credit:
The department also demanded ?35,91,928/- for short-paid duty due to wrong utilization of CENVAT credit. The Tribunal noted that this amount was part of the total credit already demanded and upheld, thus causing double jeopardy. Consequently, the demand for ?35,91,928/- was set aside to avoid unjustifiable duplication.

5. Imposition of Penalties Under Section 78 of the Finance Act, 1994:
The Tribunal considered the penalties imposed under section 78 and noted the appellant's reversal of the entire credit. Citing the High Court's decision in Commissioner of Central Excise Vs. Strategic Engineering (P) Ltd., which held that mere taking of credit wrongly does not warrant penalties, the Tribunal set aside the penalties imposed under section 78.

Conclusion:
The Tribunal modified the impugned order by setting aside the demand of ?35,91,928/- and the penalties under section 78, while upholding the remaining part of the order, including the recovery of ?3,22,07,534/- with interest. The appeal was partly allowed in these terms.