2021 (3) TMI 793 - HC - Service Tax

Exempt services or not - activity of trading - period prior to 01.04.2011 - requirement of reversal of credit taken on input service - input services used directly or indirectly or in relation to the manufacture of taxable goods is eligible for credit in terms of Rule 2(1) of the Cenvat Credit Rules, 2004 or not - HELD THAT - It is well settled in law that even quasi-judicial authority, while exercising its statutory powers, has to assign reasons and based on the reasons assigned by it, has to record the findings. In other words, the Tribunal exercising the statutory power under the Act is required to apply its mind and record the findings. In any case, if the Tribunal relies on a particular decision, it is duty bound to examine, by assigning reasons, as to how the ratio of the aforesaid decision applies to the fact situation of the case. It is evident that the Tribunal has merely relied on the judgment of the High Court of Madras in the case of M/S. FLSMIDTH PVT., LD. 2014 (12) TMI 699 - MADRAS HIGH COURT and has not even assigned any reason as to how the aforesaid decision applies to the fact situation of the case. Thus, the order passed by the Tribunal is cryptic and suffers from the vice of non-application of mind. Matter remanded to the Tribunal for fresh adjudication after considering the submissions made at the Bar and to decide the matter by a speaking order - appeal allowed by way of remand.

Summary

Issues:
1) Whether trading activity should be considered as exempted service prior to 01.04.2011.
2) Whether credit taken on input service is liable to be reversed without a specific method of computation.
3) Whether only input services directly or indirectly related to the manufacture of taxable goods are eligible for credit.

Analysis:
Issue 1:
The appellant, engaged in manufacturing excisable goods and providing taxable output services, availed Cenvat Credit on input services used for trading. The dispute arose when the authorities sought to deny credit for input services used in trading, stating they were not eligible. The adjudicating Authority and the Appellate Authority upheld the denial of credit. The Tribunal, relying on a decision of the High Court of Madras, dismissed the appeal. However, the High Court found the Tribunal's order lacking in reasoning and remitted the matter back to the Tribunal for fresh adjudication.

Issue 2:
The appellant faced a challenge regarding the reversal of credit taken on input services without a specific method of computation during the disputed period. The Tribunal upheld the decision against the appellant based on the High Court of Madras' judgment. However, the High Court found the Tribunal's order lacking in application of mind and directed a fresh adjudication with proper reasoning.

Issue 3:
Another issue raised was whether only input services directly or indirectly related to the manufacture of taxable goods are eligible for credit. The Tribunal upheld the denial of credit, citing the appellant's failure to declare the input service credit used in trading in their ST3 Return. The High Court found the Tribunal's order lacking in reasoning and directed a fresh adjudication, emphasizing the need for a detailed examination of the facts.

In conclusion, the High Court found the Tribunal's order lacking in reasoning and directed a fresh adjudication with proper application of mind. The matter was remitted back to the Tribunal for a detailed examination and a speaking order within a specified timeframe. All legal contentions were kept open for further consideration.