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TMI Blog2015 (6) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice credit was used in relation to trading. This amounts to suppression of facts. Therefore, the extended period of limitation is correctly invoked as the appellants are following self assessment procedure and taking credit on their own against the provisions of law. Therefore, the present case is distinguishable from the case of Landis +GYR Ltd. Reliance is placed on the case of Mercedes Benz (supra) as that judgment involved the same circumstances as far as the issue of time bar is concerned. Reducing penalty to 50% of amount confirmed under proviso to Section 78(1) is bad in law because the proviso became effective from 08/04/2011 whereas the period in the present case is from 2006-2007 to 2010-2011. I am also inclined to agree with the learned AR that the department was not put to notice on application of Rule 6(3A) by the Commissioner (Appeals) when the show-cause notice did not state this. I find that principles of natural justice have been violated. However, I have already decided the issue on merits in favour of Revenue. In view of applicability of extended time period for suppression of facts, I uphold the penalty equivalent to amount of Cenvat Credit demanded as hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit used in the trading activities. He accordingly reduced the amount of Cenvat Credit demanded to ₹ 6,97,822/- along with interest under section 75 and imposed penalty under Section 78 amounting to ₹ 3,48,911/-. 3. Heard both the sides and considered the submissions. 4. The contention of the learned Counsel for the appellant is that there is no provision in law for disallowing Cenvat Credit, either partially or proportionately, on input services commonly used for providing output services and in trading activities. Further, the inclusion of trading under exempted services was made effective from 01/07/2012. Hence, prior to this date, as the definition of exempted service did not include trading, the denial of Cenvat Credit as done is not correct. He contested the demand confirmed by the adjudicating authority in which the total trading turn over was considered to deny the Cenvat Credit on the input services going into the trading activities. According to him this is patently wrong because the value of trading activity should be computed on the basis of selling price minus cost price which formula was adopted from 01/04/2011 in Rule 6(3D) of the Cenvat Credit Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that the judgment in the case of Shariff Motors (supra) relied upon by the learned Counsel is not relevant because the circumstances in those cases are that both the activities involved are in the nature of services, namely, the authorised service station service and GTA service. Therefore, the facts are distinguishable. The learned DR also submit that the Commissioner (Appeals) has gone beyond the show-cause notice in computing the formula in accordance with the Rule 6 and he did not put the department to notice in this matter. 6. I have carefully considered the facts of the case and the submissions made by both sides. It is clear from the definition of input service that the input must be used for providing output service. The appellant have strongly relied on the fact that during the period in dispute input service credit was not disallowed in the statute if the said services are used in trading activities. We find that trading is altogether outside the purview of Service Tax law. Cenvat credit of services is permissible on input service in accordance with Rule 3 of Cenvat Credit Rules. The input service is defined under Rule 2(l) as a service used for providing output ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The next question that arises is whether Cenvat Credit Rules and Service Tax Credit Rules would be applicable. Rule 6(2) of Cenvat Credit Rules is reproduced below : Where a manufacturer or provider of output service avails of CENVAT CREDIT in respect of any inputs or input services, [***], and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVA T credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to standard accounting principles is deducted and the balance only availed for the purpose of payment of service tax of output service. This proposition is not against the law in view of the fact that there are several decisions of various High Courts and also of the Tribunal wherein a view has been taken that subsequent reversal of credit amounts to non-availment of credit. 15. We find considerable force in the arguments of Ld. Senior Advocate for the appellant that changes made by Explanation are substantive in nature. Explanations have been made in Rules by a Notification without giving it retrospective effect and though notification was issued on 1.3.2011 but came into force only 1.4.2011 and thus it cannot have retrospective effect. In our view, Revenue's act as to consider trading' as exempted service for the period Aug. 2010 to March, 2011 in E/1019/12-Mum and demanding 6% of the trading turnover is not correct. 16. In view of the above, we have come to the conclusion that trading was not a service and therefore, cannot be considered as an exempted service during the period prior to 1.4.2011 and the amended provision with effect from 1.4.2011 will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontext, the said court has held that the spread, the difference between the selling price and purchase price should be taken for the purpose of VAT. In the present case, the dispute is not relating to computation of turnover for purpose of charging a tax as there is no tax liability in case of traded goods. The question is how to apportion the credit of tax on the input service between the manufactured goods and the traded goods, whether we should take the turner of the manufactured goods and traded goods for apportioning the credit of the service tax on input services or some other criteria should be followed. We, therefore, do not find any applicability whatsoever of the said judgment in the facts and circumstances of the present case. Another judgment quoted by the Ld.Sr. Advocate is the judgment of the Hon'ble Supreme Court in the case of Commissioner of Wealth Tax, Meerut vs. Sharvan Kumar Swarup Sons reported in (1994) 6 SSC 623. In this case, wealth tax was applicable on various assets. A new rule was inserted with effect from 1.4.1979 to determine the market value of properties. The question was whether the new inserted rule can be used for determining the value of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure (relating to sales promotion) is for the domestically manufactured goods and approximately 4% expenditure on the imported and traded cars. Similar is the position in respect of event management service. Here again, the event management, service is used both for indigenously manufactured cars and also imported and traded cars. Same reasoning would be equally applicable for business auxiliary and business support service. In view of the above analysis, in our view, it would be appropriate to apportion the credit of service tax on input services in the ration as is the turnover of manufactured cars and imported and traded cars. In fact, we have gone though clause (c) of Explanation I added with effect from 1.4.2011 and are of the view that perhaps the said new method has been adopted to encourage the trading of the goods rather than the manufacturing of the goods (otherwise criterion should have been same viz. based upon turnover or value addition). We therefore hold that for the period under dispute the credit of service tax paid on the common input services should be apportioned in the same ratio as the turnover of the manufactured and traded cars. 6.1 The learned Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicles by road through transporter to the show room ends with the sale of the same. Further there is no activity at the show room for the new vehicles received, other than the sale of the same. Hence the input service of inward transportation of new vehicles is closed with the sale of new vehicles. (d) The service at station is totally a different activity i.e. servicing the old/used vehicles only and there is no relation to the input services received at the show room to output services from the service station. (e) The inward transportation of new vehicles is not meant for service station. Hence the input service of GTA cannot be treated as input service to service station in terms of Cenvat Credit Rules, 2004. 4. The learned Departmental Representative reiterated the Grounds of the Appeal'. 5. The learned Consultant for the Respondents stated that the view taken by the Revenue is not correct. He stated that the Respondents received Hero Honda' Motor Cycles and then they discharged the service tax liability on the tax paid as GTA as the goods had to be received from the factory to their show room. Therefore the service tax paid has been taken as credit. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at input credit is available under Service Tax law for providing output services in terms of the definition of input service in the Cenvat Credit Rules whereas the trading activity is outside the purview of service tax law. 7. On issue of time bar, the learned Counsel has relied on Landis + GYR Ltd. (supra) which held that: I find that the show cause notice does not spell out the circumstances or facts which were suppressed and how the appellant had availed the said admissible CENVAT credit with mala fide intention. I also find that the Adjudicating authority as well as the Appellate authority did not discuss the facts which were suppressed or mis-declared or mis-stated by the appellant, except observing that had the Audit not pointed out the said wrong credit, the amount would not have been recovered from the appellant. I find this reasoning standing alone cannot be accepted as a ground for confirming suppression, mis-statement or mis-declaration of facts by the appellant, in availing the inadmissible CENVAT credit on the input services used in the trading of the goods and not in or in relation to the manufacture of the goods. But in the present case, the appellant have n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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