2019 (12) TMI 524 - AT - Service Tax

CENVAT Credit - trading activity - common input services - transportation of vehicles upto the premises of appellant - demand on the ground that the credit availed on services on the ground that trading activities are exempted services for the purpose of Credit Rules - HELD THAT - The Credit Rules specifically provided that trading activities have to be considered as exempted service and therefore the assessee cannot claim the benefit of CENVAT credit to the extent the input service attributable to trading activities. The Tribunal s decision in the case of Shariff Motors 2009 (3) TMI 155 - CESTAT BANGALORE relied by the appellant pertained to the period prior to the date of amendment in the Credit Rules whereby the trading activity has been deemed to be exempted service and therefore the said decision has no application in the present case - thus the appellant is not entitled to credit pertaining to trading activities. Penalty - HELD THAT - The appellant has deposited the service tax amount with interest which is duly recorded in the adjudication order - there was a reasonable cause for non-payment of service tax prior to initiation of proceedings and therefore the appellant is entitled to the benefit of Section 80 of the Finance Act 1994 for waiver of penalty - penalty set aside. Appeal allowed in part.

Summary

Issues:
Demand of service tax, availment of CENVAT credit, trading activities as exempted services, imposition of penalty.

Analysis:
The appeal was filed against the demand of service tax amounting to &8377;21,44,115 along with interest and penalty for the period 2011-12 to 2015-16. The appellant, an authorized dealer of Maruti Motors engaged in selling motor vehicles, also provided taxable services as an authorized service station. The dispute centered around the availment of credit of service tax charged by Maruti on transportation of vehicles and common input services. The demand was raised by disallowing the credit on the grounds that trading activities were considered exempted services under the Credit Rules. The appellant had already paid the entire service tax demanded along with interest as per the adjudication order.

The appellant argued that the service tax paid on the transportation of vehicles to their premises should be considered an eligible input service, citing a Tribunal decision in a similar case. They contended that there was no deliberate fraud or intent to evade tax, thus penalty imposition was unwarranted. On the other hand, the Departmental Representative maintained that trading activities were classified as exempted services, making the appellant ineligible for credit related to such activities. They argued that the credit availed for transportation services charged by Maruti would also be utilized in trading activities, further supporting the disallowance of credit.

After hearing both sides and examining the records, the Tribunal focused on determining whether the appellant was entitled to credit for services used in both trading activities and rendering taxable output services. It was held that trading activities had to be considered as exempted services under the Credit Rules, thereby disallowing the appellant's claim for credit related to trading activities. The Tribunal distinguished a prior decision cited by the appellant, emphasizing that the rules had been amended to include trading activities as exempted services. Consequently, the appellant was not entitled to credit for trading activities.

Despite the disallowance of credit for trading activities, the Tribunal noted that the appellant had already paid the service tax amount with interest. Regarding the penalty imposed, it was deemed that there was a reasonable cause for the non-payment of service tax prior to the proceedings initiation. Therefore, the appellant was granted the benefit of Section 80 of the Finance Act, 1994, leading to the waiver of the penalty. The appeal was partially allowed, setting aside the penalty while upholding the disallowance of credit for trading activities.

This detailed analysis of the judgment highlights the key issues addressed, arguments presented by both parties, and the Tribunal's decision on each aspect, ensuring a comprehensive understanding of the legal ruling.