2023 (12) TMI 1108 - AT - Service Tax

CENVAT Credit - input tax credit availed on common input services such as advertisement, banking and finance, courier service, manpower service, renting of immovable property service, security service, telecommunication service etc. for trading also - non-maintenance of separate accounts as contemplated under Rule 6 (2) - HELD THAT - There is nothing to show that the department has verified as to whether the trading units have availed credit on input services. It is merely stated that the trading units have provided installation services for which they have collected service tax and paid to the Government and so is engaged in services also - such installation services are output services of the trading unit and not input services. Credit cannot be availed on the service tax paid on output services viz; installation charges. On perusal of records, in the invoices issued for sale of products, the trading unit while collecting service tax on installation charges has mentioned the service tax registration number of the service unit of the appellant. This might have created confusion to the department to assume that the trading unit has availed credit on input services. Merely because the appellant trading unit had mentioned the service tax registration number of the service unit while issuing invoices, the department has assumed that the appellant trading unit must be availing credit on input services also. The department has made a conclusion that the trading units are also to be considered as service units and the demand has been raised alleging that the appellant has availed credit in regard to activity of trading. It also requires to be mentioned that while quantifying the duty demand the turnover of the trading units has been applied against the total credit availed by the service units. Thus, the appellant has been required to pay 6% of the value calculated by such formula. The department has failed to establish the allegation in the SCN that credit on common input services have been availed in regard to trading - the demand raised being factually and technically incorrect cannot be sustained. The impugned order is set aside, the appeal is allowed.

Issues Involved:
1. Whether the appellant availed input tax credit on common input services for trading activities.
2. Whether the appellant maintained separate accounts as required under Rule 6(2) of Cenvat Credit Rules, 2004.
3. Applicability of Rule 6(3) of Cenvat Credit Rules, 2004.
4. Quantification of demand.
5. Invocation of the extended period of limitation.
6. Imposition of interest and penalty.

Summary of Judgment:

1. Availment of Input Tax Credit on Common Input Services:
The department alleged that the appellant availed input tax credit on common input services for trading activities. The appellant contended that they did not avail any credit attributable to their trading segment and maintained separate accounts for different business segments. The Tribunal found that the department failed to establish that the appellant's trading units availed credit on input services.

2. Maintenance of Separate Accounts:
The appellant argued that they maintained separate books of accounts for different segments, and no credit was availed for trading activities. The Tribunal noted that the appellant's accounts were maintained in such a way that expenses pertaining to a particular unit were recorded based on unique plant/unit codes.

3. Applicability of Rule 6(3) of Cenvat Credit Rules, 2004:
The department contended that the appellant was liable to reverse 6%/7% of the value of credit availed on exempted services as per Rule 6(3). The appellant argued that Rule 6(3) was not applicable as their service units did not engage in trading activities. The Tribunal concluded that the department's assumption was based on erroneous perception and factual errors.

4. Quantification of Demand:
The Tribunal found that the quantification of the demand was incorrect. The department applied the turnover of trading units against the total credit availed by service units, which was flawed. The total demand of service tax was Rs. 12,53,61,238/-, whereas the total credit availed by the appellant was Rs. 3,16,72,532/-.

5. Invocation of Extended Period of Limitation:
The Tribunal held that the invocation of the extended period of limitation was not warranted as the issue involved interpretation of complex legal provisions and there was no suppression of facts by the appellant.

6. Imposition of Interest and Penalty:
Since the demand of service tax was found to be unsustainable, the imposition of interest and penalty under Sections 75, 76, and 78 of the Act did not arise.

Conclusion:
The Tribunal set aside the impugned order, allowed the appeal, and granted consequential reliefs. The department failed to establish that the appellant availed credit on input services for trading activities, and the quantification of the demand was incorrect. The extended period of limitation and imposition of penalties were not justified.

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