2023 (5) TMI 84 - AT - Service Tax

CENVAT Credit - trading activity - non-maintenance of separate records - income from derivatives (trading profit) - investment made by the appellant towards buying and selling of derivatives amounts to trading of derivatives or not - Rule 6(3) of the Cenvat Credit Rules, 2004 - suppression of facts or not - extended period of limitation - HELD THAT - This is an admitted fact that the appellants were regularly submitting Returns and there is no allegation that the appellant had suppressed or omitted any facts while submitting such Returns. The appellant is registered with the service tax department under different categories; they are engaged in the trading of derivatives during the period from October 2011 to March 2016. Even if it may be negligible, it is an admitted fact that they have not maintained separate account for Cenvat credit availed for discharging the service liability for the taxable service provided by them. On going through the case laws submitted by the learned Counsel for the appellant in ACE CREATIVE LEARNING PVT. LTD. VERSUS COMMISSIONER OF CENTRAL TAX, BENGALURU SOUTH GST COMMISSIONERATE 2021 (4) TMI 687 - CESTAT BANGALORE where this Tribunal has taken a decision regarding exempted service of trading in mutual fund and also held that extended period of limitation not invokable where Revenue s case is based on balance sheet, Returns and other records of the assessee and also as per the provisions of Securities Contracts (Regulation) Act, 1956. Extended period of limitation - HELD THAT - The extended period of limitation cannot be invoked in the present case - the appellant is liable for reversal of credit only for the normal period and the order invoking demand for the extended period of limitation is set aside. As per the submissions made by appellant, pro-rata reversal for the period from 2014-15 is Rs.1,65,675/- and for the financial year 2015-16 is Rs.1,16,896/-. However, there is no finding given by adjudicating authority regarding amount payable for the normal period. The matter is remanded to adjudicating authority to re-determine the amount by way of short payment of service tax with interest as per provision of Section 75 of Finance Act, 1994 read with Rule 14 of Cenvat Credit Rules, 2004 only. Since there is no allegation regarding suppression of fact by the assessee in their Returns, the extended period of limitation is not applicable and penalty imposed by the impugned order is also set aside. The appeal is partially allowed and is remanded to adjudication authority.

Summary

Issues involved:
The issues involved in the judgment include the demand of service tax, penalty, and interest imposed on the appellant for the period from October 2011 to March 2016 under Section 73(1) of the Finance Act, 1994. The main contention revolves around the applicability of Rule 6(3)(i) of the Cenvat Credit Rules, 2004 to the trading profit earned from derivative transactions by the appellant.

Issue 1: Demand of Service Tax
The appellant, a Public Company engaged in breeding racehorses, was registered under various service tax categories. The adjudicating authority confirmed a demand of Rs.28,76,774/- for service tax short paid by the appellant. The Commissioner (Appeals) upheld this decision, leading to the present appeal challenging the order.

Issue 2: Applicability of Rule 6(3)(i) of Cenvat Credit Rules, 2004
The appellant argued that the department's demand based on Rule 6(3)(i) was unjustified as the trading activity in question did not fall under exempted services during the relevant period. The appellant contended that the nature of the trading activity involving the transfer of title in goods did not constitute a service as per the Cenvat Credit Rules. Additionally, the appellant cited a previous tribunal decision to support their position.

Issue 3: Trading Profit from Derivative Transactions
The dispute centered on whether the appellant's income from derivative transactions should be subject to the provisions of Rule 6(3)(i) of the Cenvat Credit Rules, 2004. The appellant argued that the transactions were conducted through agents/brokers and not directly by the company, thus negating the need for separate records under Rule 6(3). The appellant also emphasized that the extended period of limitation should not apply in this case.

The learned Counsel for the appellant contended that the demand invoking Rule 6(3)(i) was inapplicable due to the nature of the trading activity and the timing of the relevant rule amendment. The appellant highlighted that the total pro-rata credit to be reversed was lower than the amount specified under Rule 6(3A). Moreover, the appellant argued that the department wrongly assumed the appellant provided exempted services and failed to maintain separate records, citing relevant legal provisions and a precedent.

The learned AR, on the other hand, asserted that the appellant's investments in derivatives constituted trading activities, distinct from mutual fund transactions. The AR argued that the case laws cited by the appellant were not directly applicable to the present scenario, emphasizing the differences between mutual fund investments and derivative trading.

Upon review of the submissions, the Tribunal found that the appellant had not maintained separate accounts for Cenvat credit availed during the trading of derivatives. While the appellant's returns were regularly submitted without suppression of facts, the Tribunal acknowledged the lack of separate record-keeping for the Cenvat credit.

The Tribunal considered the definitions of securities and derivatives under the relevant legal provisions and previous tribunal decisions related to exempted services. It was concluded that the extended period of limitation could not be invoked in this case, and the matter was remanded to the adjudicating authority for reassessment of the service tax liability for the normal period only.

In the final decision, the Tribunal partially allowed the appeal, setting aside the penalty imposed and directing the adjudication authority to re-determine the short payment of service tax with interest for the normal period as per the statutory provisions. The appellant was granted an opportunity for a hearing, and the adjudication was to be completed within three months from the date of the order.