2019 (8) TMI 1188 - AT - Service Tax

CENVAT Credit - common inputs used in taxable as well as exempt service - non-maintenance of separate records for trading spare parts of helicopter and sale of scrape, being considered as exempted service - Proviso 6(3)(b) of the CENVAT Credit Rules 2004 - HELD THAT - This order is erroneous for the reason that appellant was not provided with the opportunity to exercise either of the two options of Rule 6 though it was willing to go for proportional reversal that would have substantially reduced the demand. However, having regard to the fact that trading, being not a service, reversal of proportionate credit is uncalled for. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Demand of duty for not maintaining separate records for trading spare parts of helicopter and sale of scrap, availing entire CENVAT credits on inputs.

Analysis:
1. The appellant, a Public Limited Company providing helicopter repair & maintenance services, faced a demand of duty amounting to ?14,11,029 for the period between 2009 and September 2013 due to not maintaining separate records for trading spare parts of helicopters, considered exempted service. The demand was based on a Show Cause Notice issued by the Joint Commissioner, Service Tax, Mumbai-II, which was later confirmed by the Adjudicated Authority after the appellant's unsuccessful challenge before the Commissioner (Appeals).

2. The appellant argued that their operations were not trading but rather providing spares from their own inventory to customers in need, which should be considered clearance of inputs and not trading. They contended that trading could not be treated as exempted service before April 2011 and challenged the retrospective application of the explanation to the definition of exempted service. The appellant also raised concerns about the imposition of penalties and the invocation of an extended period.

3. The Department's representative supported the Commissioner (Appeals)'s decision, citing circulars and judicial decisions to justify denying proportionate credit on input services attributable to trading activity. The Department argued that trading itself was not a taxable service subject to excise duty from April 2011 onwards.

4. The Tribunal noted that the Commissioner (Appeals) had applied the explanation appended to Section 66 of the Finance Act retrospectively from April 2011 to cover the disputed period, considering trading as an exempted service. However, the Tribunal disagreed with this interpretation, citing precedents and statutory definitions to establish that trading should not be considered a service for tax purposes.

5. Ultimately, the Tribunal allowed the appeal, setting aside the Commissioner (Appeals)'s order. The Tribunal found errors in the Commissioner (Appeals)'s decision not to provide the appellant with options to comply with the rules regarding exempted services, considering the nature of trading activities. The Tribunal's decision was based on the understanding that trading, as clarified in previous judgments, should not be classified as a service subject to taxation.

6. In conclusion, the Tribunal's ruling favored the appellant's arguments, emphasizing that trading activities should not be treated as taxable services, leading to the setting aside of the duty demand and penalties imposed by the Adjudicated Authority and Commissioner (Appeals).