2019 (4) TMI 1561 - AT - Service Tax

CENVAT Credit - common input services used for services as well as trading - time limitation - whether the appellant is liable to pay amount under Rule 6(3A) read with Rule 2 (e) of the Cenvat Credit Rules and whether the show cause notice has been rightly issued invoking extended period of limitation? HELD THAT - The said explanation is in the nature of increasing tax liability of an assessee and as such, the same cannot be retrospective in nature unless specifically so provided by the competent authority. Extended period of limitation - HELD THAT - The elements of invocation of extended period are not available in the facts and circumstances, extended period of limitation is not available. Penalty also set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues: Liability under Rule 6(3A) of Cenvat Credit Rules & Validity of Extended Period of Limitation

Analysis:

Issue 1: Liability under Rule 6(3A) of Cenvat Credit Rules
The appeal centered on determining whether the appellant was liable to pay an amount under Rule 6(3A) read with Rule 2(e) of the Cenvat Credit Rules. The appellant, engaged in taxable services and selling spare parts, had availed cenvat credit on common input services. The show cause notice demanded reversal of cenvat credit for the period from April 2008 to March 2013, invoking extended period of limitation. The appellant argued that the amendment introducing trading as an exempted service was effective from April 1, 2011, and prior to that, there were no provisions for denial or reversal of credit related to trading activities. The appellant contended that proper books of accounts were maintained, and the issue was one of interpretation, lacking elements for invoking the extended period.

Issue 2: Validity of Extended Period of Limitation
The question of whether the show cause notice correctly invoked the extended period of limitation was crucial. The Commissioner (Appeals) held that the explanation inserted in Rule 2(e) with retrospective effect from April 1, 2011, was clarificatory. However, the appellate tribunal disagreed, stating that an increase in tax liability should not be retrospective unless explicitly provided. In this case, the tribunal found that the elements for invoking the extended period were not present. Consequently, the tribunal ruled that the appellant was required to reverse the proportionate cenvat credit for trading activities for the normal period along with interest. The penalty imposed on the appellant was set aside, and the appeal was allowed with consequential benefits.

In conclusion, the judgment clarified the liability under Rule 6(3A) of the Cenvat Credit Rules and addressed the validity of the extended period of limitation. The retrospective effect of the amendment introducing trading as an exempted service was analyzed, emphasizing the absence of stipulation for retrospective application. The tribunal's decision highlighted the importance of explicit provisions for increasing tax liability retrospectively and determined that the extended period of limitation was not applicable in the circumstances.