2024 (11) TMI 1229 - AT - Service Tax

Demand on account of irregular availment of cenvat credit on exempted services needs - period under dispute from 2013-14 to 2017-18 (upto June 2017) - levy of penalty for non-filing of ST-3 returns, thus, contravening the provisions of Rule 7 of Service Tax Rules, 2004 read with Section 70 of the Finance Act, 1994. HELD THAT - The Cenvat Credit Rules, 2004 read with Section 66D of the Finance Act, 1994 clearly states that trading activity is an exempted service and therefore, cenvat credit is not available for the exempted services. Taking of irregular credit on the trading activity was known to the appellant and from 01.03.2011 they were not liable to avail cenvat credit on the trading activities - after the amendment with effect from 01.04.2011 wherein trading activity was specifically included in the negative list, clearly establishes that trading activities are to be considered as exempted services and any credit taken on the exempted service needs to be reversed. From the above Final Order, it is also seen that the demand was confirmed for the period 01.04.2011 to 31.03.2012 which was dropped only on limitation. The appellant being aware of this fact, continued to take credit even after the amendment and after confirmation from department on merits in their own unit at Bangalore South for the period 01.04.2011 to 31.03.2012. This clearly establishes that appellant had suppressed this fact and continued to avail the credit, the fact that they have filed the returns regularly does not absolve them from their liability. As clearly held by the Commissioner (Appeals), the appellant working under self-assessment procedure had to comply with the relevant Act and Rules especially when the issue was already known to them. Hence, the credit on the exempted product both on merits and limitation is upheld. Amendment allowed reversal of proportional credit along with interest, in the cases where common credit was being availed on both dutiable and exempted goods, the demand of 6% / 7% on the exempted value cannot be sustained, the matter stands remanded for calculating the proportionate cenvat credit to be reversed along with interest. Penalty imposed under Section 78 of the Finance Act, 1994 is set aside. Penalty for non-filing of returns, it is noticed that the appellant had filed the returns but uploaded returns were rejected by the portal due to some unspecified technical error from the records placed before us and hence, as rightly claimed by the appellant they cannot be penalised for non-filing of returns. Accordingly, the penalty imposed under Section 77(2) of the Finance Act, 1994 is set aside. Demand under Rule 6(3) of the Cenvat Credit Rules, 2004 the matter is remanded for re-determining the proportionate cenvat credit along with interest on the trading activities that are considered to be exempted.

Summary

Issues:
1. Irregular availment of cenvat credit on trading activities (exempted services)
2. Levy of penalty for non-filing of ST-3 returns

Analysis:

Issue 1: Irregular availment of cenvat credit on trading activities (exempted services)

The appellant, engaged in repair and maintenance services, availed cenvat credit of service tax paid on input services, including trading activities considered exempted services. The duty demand was confirmed under Rule 6(3) of the Cenvat Credit Rules, 2004, amounting to Rs.9,79,968/-, with penalties imposed for suppression of facts and non-filing of service tax returns. The Commissioner (Appeals) upheld the demand citing suppression of facts by the appellant. The appellant contended that the trading activities were not separate sales but part of works contracts, hence not exempted services. They argued that any demand was time-barred as all relevant details were in filed returns. The Tribunal observed that trading activities were exempted services post-amendment from 01.04.2011, and the appellant was aware of this. The appellant's continued availing of credit post-amendment indicated suppression. However, considering Rule 3AA of the Cenvat Credit Rules, 2012, allowing proportional credit reversal with interest, the demand of 6% / 7% on exempted value was remanded for recalculating the credit to be reversed with interest. The penalty under Section 78 of the Finance Act, 1994 was set aside.

Issue 2: Levy of penalty for non-filing of ST-3 returns

The appellant argued that non-filing of ST-3 returns was due to technical errors rejecting uploaded returns, not mala fide intent. The Tribunal acknowledged the appellant's timely filing and the technical issue, setting aside the penalty imposed under Section 77(2) of the Finance Act, 1994. The matter was remanded for re-determining the proportionate cenvat credit and interest on trading activities considered exempted services. The appeal was disposed of accordingly, emphasizing compliance with Act and Rules despite known issues.

This detailed analysis highlights the Tribunal's findings on irregular cenvat credit availed on trading activities, penalty for non-filing of returns, and the remand for recalculating credit reversal, ensuring a comprehensive understanding of the judgment's implications and legal reasoning.