2018 (11) TMI 230 - AT - Service Tax

CENVAT Credit - Non-payment of duty @ 6%/7% of the trading value - non-maintenance of separate dutiable and exempted accounts to avail CENVAT credit - Rule 6 of CCR 2004 - Bonafide belief - Demand based on audit objections - Held that - It is apparently clear that a pure sale, un-associated with delivery of goods and services together, is not to be considered as service. Therefore what is contained in Section 66D of the Finance Act, 1994 dealing with negative list of services concerning trading of goods and the clarificatory circular referred above as well as inclusion of the same in the explanation appended to clause 2(e) of the Cenvat Credit Rules 2004 are mere clarificatory in nature since definition of service as contained in 65B(44) and exempted service in 66D are to be read conjointly and not in exclusion of each other - sale of goods-be it made in the high sea or within the territorial boundary of India in which Finance Act, 1994 has its force, cannot be called a service to impose tax liability or deny the credit under Rule 6 of Cenvat Credit Rules. Extended period and penalty - Held that - Respondent has not brought forth any cogent evidence on record to establish the charge of wilful suppression by the appellant company to invoke extended period of service so as to justify penalty. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Non-payment of duty for non-maintenance of separate dutiable and exempted accounts to avail CENVAT credit.

Analysis:
The appellant, engaged in manufacturing dutiable goods, faced duty liability due to not maintaining separate accounts for trading activities with M/s Cipla Ltd., resulting in a demand for 6%/7% of the value of exempted goods/services. The appellant contested this, arguing that their activities did not constitute trading but were part of the manufacturing process on a job work basis. They challenged the imposition of duty, interest, and penalty, citing compliance efforts and judicial rulings supporting their position. The appellant also questioned the invocation of the extended period of limitation, claiming the department was aware of their actions. They argued against the penalty imposition, stating it was not in line with prevailing laws. The appellant referenced various judgments to support their case.

The Department supported the Commissioner (Appeals)'s order, emphasizing the duty liability on the appellant due to availing CENVAT credit on common input services for manufacturing and trading exempted raw materials. The Department argued that the Tribunal should not interfere as the duty liability was in accordance with the Indirect Tax Rule.

The Tribunal analyzed the taxability of sales and levy of duty, citing constitutional amendments and court decisions. It clarified that a pure sale without associated delivery of goods and services is not considered a service. The definition of service and exempted service under the Finance Act, 1994, and CENVAT Credit Rules, 2004, were discussed to determine tax liability and credit eligibility for sales of goods.

Regarding statutory audit procedures, the Tribunal explained the purpose of audit to ensure no duty evasion, highlighting that audit findings do not automatically indicate suppression of facts or inadmissible credit. The Tribunal concluded that the respondent failed to provide sufficient evidence of willful suppression by the appellant, leading to the appeal's allowance and setting aside of the Commissioner (Appeals)'s order.

In the final judgment, the Tribunal ruled in favor of the appellant, setting aside the Commissioner (Appeals)'s order dated 07.11.2017. The decision was pronounced in court on 01.11.2018.