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TMI Blog2018 (7) TMI 1679X X X X Extracts X X X X X X X X Extracts X X X X ..... tuation, the only correct legal position appears to be that it is for the assessee to segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availing credit. In the present case, the assessee s argument that there is no mechanism to reverse credit, once taken, in the opinion of this Court, cannot be accepted. The assessee was well aware of the exact nature and extent of its service tax liability. It was also aware of the eligible service tax inputs. Therefore, when it did claim- successfully and unchallenged input credits in respect of activities that were not subjected to service tax levy, it was aware that the claim was excessive and could not be justified. Extended period of limitation - Held that:- Being conscious of its trading activity and that it was not liable to service tax (since it did not include the amounts earned from that business, in its returns) meant that the assessee was aware of what it was doing. It cannot now take shelter under the plea that non-trading activity was expressly exempt from claiming credit, in 2011. That amendment made no difference, given that trading was never taxable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Tri.-Mumbai) wherein it was held that No Cenvat is eligible for inputs/services used for trading as the trading is an exempted service. The explanation added to the Rule 2(e) vide Notification No. 3/2011- Central Excise (V.T.) makes it more than clear as it states that for removal of doubts, it is hereby clarified that exempted services includes trading. This explanation only clarify the existing position as held by Hon'ble CESTAT in Metro shoe case in 2008. Therefore, it cannot be said that it is effective only from 01.04.2011. 27. The assessee contention that no Cenvat Credit is recoverable from them as they have not availed any CENVAT credit on the inputs which were exclusively used in the exempted services under Rule 6(3) of the CENVAT credit Rules is also not sustainable as Rule 6(3) is applicable for the common inputs which are used for providing for taxable services and exempted services which is the case of the notices since they are providing both taxable services i.e. servicing of the cars and non-taxable services of trading in cars. Explanation (ii) to the rule clarify that if any input or services are used for providing exclusively for exempted service the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by naming 'trading' as an exempted service by way of explanation in Rule 2 of Cenvat Credit Rule w.e.f. 01.04.2011. We find prior to creation of such fiction, there is no scope at all even to consider the trading activity to be covered under the credit scheme. After the explanation, the position is more clear to the effect that the trading activity can be considered as an exempted service for the operation of scheme under Cenvat Credit Rules. In other words, prior to that clarification, in the absence of such explanation, trading is not at all covered by the credit scheme. Accordingly, we find the appellants should not have availed credit for common input services which are used for taxable output service as well as trading activity, as it is imperative to identify and reverse that amount of credit attributable to the trading activity. We find no infirmity in the findings of the original authority on merit or on quantification. 7. Regarding the question of limitation and penalty, we know that the trading is not at all an activity or a service covered by the Cenvat scheme prior to the introduction of clarificatory explanation. The appellants have no reason to avail cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) which held that trading was not service and, therefore, could not be considered as an exempted service for the period prior to 01.04.2011 and the amended provision did not have retrospective effect. 9. It was pointed out that Rule 6(3)(c), relied upon by the Revenue, was omitted w.e.f. 01.04.2008 (prior to the disputed period) by notification dated 01.03.2008. Counsel submitted that in the absence of a formula reversing input service credit for those assessee involved in trading activity along with taxable service, the entire credit previously availed had to be left intact. He relied on the CESTAT Bench ruling in CCE, Tirupathi v Shariff Motors,2010(18) STR 64 (Tri- Bang.) where entire credit was allowed to the assessee, a dealer of Hero Honda motorcycles and who was also providing service and repair of motorcycles. That decision was approved by the Andhra Pradesh High Court in Commissioner of Central Excise, Tirupathi v Shariff Motors, 2015(38) STR J53 (A.P). Mr. Mittal contended, therefore, that the assessee was entitled for full input service credit or at the most could be disallowed only ₹ 26,19,759/- segregating the quantum of input service attributable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal 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 ₹ 13,27,497/-. 13. The counsel also pointed out that the above decision was upheld by Bombay High Court in Commissioner v. Metro Shoes Pvt. Ltd. 2012 (28) S.T.R. J19 (Bom.). 14. It was submitted that in this case, the assessee was engaged in trading activities in common premises. Those activities were not subjected to service tax, as they involved distribution, sale or vending of goods. The question of any such activity being exempt on account of the 2011 amendment Rules, does not arise. The amendment only stated the obvious. However, that did not mean that trading was subject to service tax. If any activity was not subjected to that levy, the question of claiming any credit in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity. The obvious solution would 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 standard accounting principles is deducted and the balance only availed for the purpose of payment of service tax of output service. 17. In the present case, the assessee s argument that there is no mechanism to reverse credit, once taken, in the opinion of this Court, cannot be accepted. The assessee was well aware of the exact nature and extent of its service tax liability. It was also aware of the eligible service tax inputs. Therefore, when it did claim- successfully and unchallenged input credits in respect of activities that were not subjected to service tax levy, it was aware that the claim was excessive and could not be justified. If, for instance, input credits were claimed in respect of goods or rents, attributable to retail business, those credits were clearly impermissible. In these circumstances, this Court finds no infirmity with the concurrent findings of the lower authority and the CESTAT, which concluded that Show Cause Notice and recoveries were in order. 18. As regards the metho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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