2019 (2) TMI 591 - AT - Service Tax

CENVAT Credit - trading of goods which is an exempted activity from service tax as per the Negative List - Rule 6(3) of the CCR - Held that - The appellant has categorically stated in the reply that they have not taken any CENVAT credit on any of the input services which is used by the show-room - Further even if Rule 6(3) is applicable, the appellant is required to reverse proportionate credit only which is relating to trading whereas in the impugned order, entire credit has been disallowed which is not permitted under law - Further the Commissioner has not given the personal hearing to the appellant and thereby violated the principles of natural justice. The case needs to be remanded back to the adjudicating authority who will pass a de novo order after considering the reply of the appellant - appeal allowed by way of remand.

Summary

Issues:
- Demand of CENVAT credit under Rule 6(3) of CCR
- Imposition of interest under Section 75 and penalty under Rule 15(3) of CCR read with Section 78 of the Finance Act, 1994

Analysis:
1. Demand of CENVAT credit under Rule 6(3) of CCR:
The appellant was engaged in providing various services and trading HONDA brand two wheelers and spare parts. The Department alleged that the appellant's trading activities were exempted from service tax, leading to incorrect CENVAT credit availed by the appellant. A show-cause notice was issued, resulting in a confirmed demand of &8377; 9,58,683/- under Rule 6(3) of CCR, along with a penalty of &8377; 4,93,106/- as per Rule 15(3). The period in question was October 2010 to March 2015. The appellant argued that they were not engaged in trading activities that required CENVAT credit reversal, as they only availed credit for input services at their service stations and not for trading purposes. They emphasized that they had not taken credit for services used in trading activities, and any credit taken on advertisement expenses was ready to be reversed. The appellant also claimed that the Revenue's conclusion was based on an isolated case and did not allow for pro-rata credit as per Rule 6(3A).

2. Imposition of interest and penalty:
The appellant contended that the impugned order was unsustainable as it did not consider the documentary evidence and the appellant's response to the show-cause notice. The appellant argued that they had not availed CENVAT credit for services used in trading activities, and if Rule 6(3) applied, only a proportionate credit related to trading should be reversed. The Commissioner's failure to provide a personal hearing to the appellant was seen as a violation of natural justice. Consequently, the Tribunal set aside the impugned order and remanded the case to the adjudicating authority for a fresh decision, considering the appellant's submissions, relevant legal provisions, and principles of natural justice.

In conclusion, the Tribunal found discrepancies in the application of Rule 6(3) of CCR and the denial of proportionate credit reversal. The case was remanded for a fresh decision, emphasizing the importance of considering all aspects, providing a personal hearing, and ensuring compliance with legal principles.