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TMI Blog2014 (4) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... he common input services should be apportioned in the same ratio as the turnover of the manufactured and traded cars. Extended period of limitation - Held that:- The assessee is following the self assessment procedure and taking credit on its own. They were even taking the credit in respect of input services which were exclusively used in the trading activity. It is also observed that the fact that the appellants were taking credit of service tax in relation to the trading activity has not been disclosed in return or in other document and therefore, the extended period of limitation is correctly invoked. These reasons would be applicable even for penalty under Section 11AC read with Rule 15 of Cenvat Credit Rules including the demand of the normal period issued in the first show-cause notice - Decided against the assessee. - Appeal No.E/370, 456, 385/11-Mum & E/1019/12-Mum - Final Order Nos. A/123-126/2014-WZB/C-II(EB) - Dated:- 20-2-2014 - Mr. S S Kang and Mr. P K Jain, JJ. For the Appellant : Shri V Sridharan, Adv. with Shri Ashish Philips, Adv. For the Respondent : Shri Shobha Ram, Commissioner (AR) JUDGEMENT Per: P K Jain: The appellant assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant assessee and Revenue, it would be convenient to see some of the provisions of Cenvat Credit Rules which are relevant. The Rules have undergone certain changes in 2011. Even though all the demands pertain to the period March, 2005 to March, 2011 and thus the dispute is for the period prior to the said amendments, both the appellant assessee as also the Revenue seek to use part of the amended Rules/provisions to suit their requirement for the period prior to April, 2011. Position upto 31.3.2011: Term Service was not defined in the law. Exempted service was defined under 2(e) of the Cenvat Credit Rules as under: exempted services means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act; The term input service was defined under Rule 2(l) of the said Rules as under: input service means any service,- (i) used by a provider of taxable service for providing an output service; or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal but excludes services (A) .. Rule 6(3) reads as under:- Rule 6(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow any one of the following options, as applicable to him, namely:- (i) pay an amount equal to five per cent of value of the exempted goods and exempted services; or (ii) pay an amount as determined under sub-rule (3A); or (iii) (3A): For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in (1997) 1 SCC 729 and also Hon'ble Bombay High Court in the case of Coco Cola India Pvt. Ltd. vs CCE, Pune III reported in 2009 (50) STR 657 (BOM) . The Ld. Sr. Advocate also argued that this Tribunal in the case of Orion Appliances Ltd. vs. Commissioner of Service Tax reported in 2010 (19) S.T.R. 205 (Tri-Ahmd.) has held that trading is not a service. In the said judgment the Tribunal held as under:- As regards the issue as to whether trading activity can be called a service, it is quite clear that since trading activity is nothing but purchase and sales and is covered under sales tax law, it may not be appropriate to call it a service. Therefore it has to be held that trading activity cannot be called a service and therefore it cannot be considered as an exempted service also 6. Ld. Sr. advocate's main contention was that since input services were used by them in connection with their business activity and the fact that trading is not a service before 1.4.2011 they are entitled to take credit of the common input services and they are not required to reverse any part of the said credit. Ld. Sr. Advocate further argued that the amendments made in 2011 are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the fact that the Tribunal has been taking a consistent view that trading activity is not a service before April, 2011, the appellant assessee are not entitled to take credit of input service which are common to manufacturing and trading. Further common credit of input services should be apportioned between the manufacturing activity and trading activity based upon the turnover of their activities. The ld. A.R. took us through the adjudication order dated 30.11.2010 to support various contentions. Ld. A.R. also contended that in the facts and circumstances of the case, extended period has been correctly invoked in the first show-cause notice as the fact the credit of input services which were used in the trading activities was being taken was suppressed from the department and came to the light only during the visit of the Audit party. In fact, the appellant assessee were taking credit of input services which were exclusively used for trading activities and it was only when the audit party pointed out that they reversed the Cenvat credit relating to such services. This itself shows that the appellant assessee had willful intention to evade the duty, and the present act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for both the activities. On the other hand learned DR would submit that the lower authorities after verifying the records have come to the conclusion that these services have not been utilized for trading activity. Further, he also submits that duty demand has been made as per Rule 3 of Service Tax Credit Rules, 2002. It is his contention that since trading activity is not at all a service, the provisions of Rule 6 of Cenvat Credit Rules and provisions of Service Tax Credit Rules cannot be applied. 4. The issues to be decided in this case are : (i) Whether trading activity can be called a service. (ii) Whether Rule 6 of Cenvat Credit Rules, 2002 and Service Tax Credit Rules, 2002 would be applicable when input services are used in respect of trading activity as well as taxable services. (iii) if Cenvat Credit Rules and Service Tax Credit Rules are not applicable, the procedure to be followed by the assessee for availing input service tax credit. 5. As regards the issue as to whether trading activity can be called a service, it is quite clear that since trading activity is nothing but purchase and sales and is covered under sales tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking activities which cannot be called a service or which cannot be called manufacture, that activity goes out of the purview of both Central Excise Act as well as Finance Act, 1994. Therefore, we have a situation where an assessee would not be eligible to take input Service tax credit on an output which is neither a service nor excisable goods and at the same time there is no provision to cover situations where an assessee is providing a taxable service and is undertaking another activity which is neither a service nor manufacture. In such a situation the only correct legal position appears to be that it is for the appellant to choose and segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availment of credit. Naturally this cannot be done in advance since it may not be possible to forecast what would be the quantum of trading activity and other activity which is liable to service tax. The only obvious solution which would be legally correct appears to be to ensure that once in a quarter or once in a six months, the quantum of input service tax credit attributed to trading activities according to stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance Act, 1994 to make Rules to provide for credit in respect of goods and services used for providing taxable service. There is no power with the Government to make rules to provide for credit in respect of service tax paid on input services which is used neither in or in relation to manufacture of excisable goods nor for providing taxable output service. Hence, the argument of the Ld. Advocate that such credit is available in respect of input service used in relation to traded goods is prima facie not acceptable as neither the existing Rules provide for it nor the Government has power to make such Rules under Section 37(2) of the Central Excise Act, 1944 and Section 94 of the Finance Act, 1994. 10. In the case of M/s. Loreal India Pvt. Ltd. (supra) similar issue arose in respect of excisable, non-excisable and traded goods and this Tribunal observed as under After hearing both sides, we find that the first issue involved in the appeal is whether the Cenvat credit available on raw materials and services used for non-excisable goods is admissible to the appellants. Under the Cenvat Credit Rules, input means all goods used in or in relation to the manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be eligible as credit, as the definition of the input services indicates that the credit is eligible only in respect of manufacture of the final product and clearance of the final product form the place of removal. The question of manufacturing the final product, in the case of trading activity does not arise as it is an admitted fact that the appellant purchased these goods for the trading activities, in their retail showroom. As such, we are of the view that the credit availed on the services which are directly attributable to the trading activity is ineligible to be availed as input service credit. Accordingly, we uphold the impugned order to the extent it denies the credit of the service tax paid on the services amounting to Rs. 13,27,497/-. 12. In the case of various services, there is a service a service provider and a service receiver. In this case of trading, there is no service provider or service receiver. Here the appellant assessee purchases goods from their principals and store it and thereafter sell it to various customers for profit. So in that sense trading is not a service and as has been held so in various judgments and quoted by both the ld. Sr.Advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces which are required for setting up of the factory or marketing of the goods. For example, advertisement or sales promotion or market research or storage upto the place of removal etc. are activities which may not be directly used in the manufacture of the goods but are required for sale of manufactured goods. Further, there are certain services which are not directly related to the manufacture or ultimate sale of the goods but would be used by the manufacturer in his day-to-day business activity such as accounting, auditing, financing, recruitment, quality control etc. Here again such services are linked to his manufacturing activity. The definition of input service makes it very clear that the input service credit is available to a manufacturer and has to be related to the final products being manufactured by that manufacturer. Thus, if advertisement is relating to the goods manufactured by the manufacturer, then the manufacturer would be entitled for the credit of the same as an input service. Similarly, if the manufacturer's activity relating to accounting, financing, recruitment and quality control etc. are relating to the goods manufactured by him, then the manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the scope of the term activities relating to business was not spelt out in the said decision. 31.2 However, the latter decision of the Hon'ble High Court of Bombay, Nagpur Bench in the case of Ultratech Cement Ltd. has dealt with the scope of the said phrase and held as under : 29. The expression activities in relation to business in the definition of input service postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be a input service under Rule 2(l) of the 2004 Rules. It is also relevant to note that the decision in the case of Ultratech Cement Ltd. has been rendered after considering the decision in the case of Coca Cola (Paragraphs 37 38). 31.3 It is further noticed that the Hon'ble High Court of Bombay in the case of Manikgarh Cement has also interpreted the expression relating to business and held as under : However to qualify as an input service, the activity must have nexus with the business of the assessee. The expression relating to bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to the credit of common services. We, therefore, hold that the common services are not covered by the definition of activities relating to business. 14. As the amendments with effect from 2011 are concerned, we find that the Ld. Sr. advocate has argued that the amendments made in 2011 are substantive in nature even though the amendments have been introduced in the form of explanation. The explanation starts with the word For removal of doubts . The same cannot be applied retrospectively, particularly, the said view is also supported by the fact that the said Notification was issued on 1.3.2011 and was to come in to force only from 1.4.2011. Moreover, Rules are delegated legislation and Government has no power to amend the Rule with retrospective effect. This can be done only by an Act. We agree with Ld.Sr.Advocate's contentions in this regard. We also find support for the same from the judgment of the Hon'ble Supreme Court in the case of UOI vs. Martin Lottery Agencies Ltd. reported in 2009 (14) S.T.R. 593 (S.C.). An explanation was appended to Section 65(19) of Finance Act, 1994 vide Finance Act, 2008. The said explanation started with the words For the remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation shall always take effect retrospectively. In the case of Commissioner of Customs v. Skycell Communications Ltd. [2008 (232) E.L.T. 434], the Larger Bench of the Tribunal has held that Explanation placing restrictions prejudicial to the assessee will not be retrospective. In the case of CCE, Shillong v. Vinay Cement Ltd. [1999 (114) E.L.T. 753], the Tribunal has held that since a notification inserting an Explanation has specifically stated that it would be effective from the date of its publication, it takes effect only from that date. In the instant case also, Notification No. 19/08 introducing Explanation to Rule 6 of the Service Tax Rules, 1994 contains a provision that it shall be effective only from the date of its publication. The amendment to Section 67 is a substantive one and will be applicable only from the date of its introduction and not retrospectively, eventhough the Explanation uses the expression for removal of doubts . The decision of the Tribunal in CCE, Pune v. Bajaj Auto Ltd. [1999 (111) E.L.T. 846] relied upon by the lower appellate authority to conclude that the amendment, which is clarificatory in nature, is retrospective, is not applicable in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery by the Bench that since Ld.Sr. advocate is arguing that only the value addition should be taken in respect of the traded goods, then why the same criteria should not be applied in the case of manufactured goods i.e. take the differential amount between the selling price and cost of various raw materials Ld.Sr. advocate stated that in case of manufactured goods so many things go into production process like labour, electricity and many other services and it will not be appropriate to take the value addition. In support of his contention that in case of traded goods only value addition should be taken, Ld.Sr. advocate took us through the judgment of the Court (5 th Chamber) dated 14.7.1998 in case C-172/96 which was passed on a reference under Article 177 of the EC Treaty by the High Court of Justice of England and Wales, Queen's Bench Division. We have gone through the said judgment carefully. In the said case, the issue was how to determine the turnover for purpose of value added tax in case of transactions in different currencies by the First National Bank of Chicago. The Bank used to purchase various currencies at a certain rate in other currencies. Similarly, the Bank us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is how to determine the same. We find that the major amount pertains to the services in relation to the advertisement, even management, business auxiliary service and business support service. When the appellant is spending certain amounts for sales promotion such as advertisement of the cars and consequent to the said expenditure he has certain turnover of the cars out of which some of the cars manufactured indigenously while other cars are imported and hence traded. In our view, the credit of tax paid on such sales promotion activities should be apportioned with reference to the turnover of the manufactured cars and turnover of the traded cars. For example, if the turnover in particular period is say Rs.1000 crore out of which turnover of Rs.700 is pertaining to the indigenous cars and turnover of Rs.300 crores pertains to the imported and traded cars then if the input credit of 10 crores is available then 7 crore should be considered for the manufactured cars in India and credit of Rs.3 crore should be considered pertaining to imported and traded cars. If we go by the argument of the Ld.Sr.Advocate then the value of traded cars will have to be taken as Rs.30 crores and total tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said judgment applicable in the present circumstances. 19. Both sides have quoted certain other case laws. We have gone through these case laws and do not consider it necessary to discuss. In addition to above, there is issue relating to invocation of extended period in Appeal No. E/370/11-Mum. The assessee is following the self assessment procedure and taking credit on its own. They were even taking the credit in respect of input services which were exclusively used in the trading activity. It is also observed that the fact that the appellants were taking credit of service tax in relation to the trading activity has not been disclosed in return or in other document and therefore, the extended period of limitation is correctly invoked. These reasons would be applicable even for penalty under Section 11AC read with Rule 15 of Cenvat Credit Rules including the demand of the normal period issued in the first show-cause notice. We, accordingly, dismiss the appeal E/370/11-Mum. We allow Appeal No. E/456/11-Mum filed by the Revenue. Appeal E/385/11-Mum is also dismissed. In respect of Appeal E/1019/12-Mum, we direct the adjudicating authority to re-compute the liabilities with refe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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