2018 (8) TMI 1737 - AT - Service Tax

CENVAT Credit - input services used in activities of manufacturing and providing taxable output service are also engaged in trading activity - non--maintenance of separate records for providing taxable and exempted services - Rule 6(2) or Rule 6(3) of Cenvat Credit Rules - Extended period of limitation. Held that - There is a categorical finding as to the fact that the appellant not seeking any refund of the proportionate credit reversed and the finding of the learned Commissioner (Appeals) is that the appellant was not disputing the fact that it was required to reverse proportionate credit on trading activities. From this it is not found as contended by the learned DR that the appellant had given up its claim on merits or on limitation. The issue has been decided without going into the merits. Also admittedly there is no finding of suppression or fraud or misstatement etc. to extend the larger period of limitation. Appeal is allowed on limitation without going into the merits of the case.

Summary

Issues:
1. Eligibility to avail service tax on input services.
2. Compliance with Rule 2(l) of Cenvat Credit Rules 2004.
3. Compliance with Rule 6(2) or Rule 6(3) of Cenvat Credit Rules.
4. Invocation of extended period of limitation.

Issue 1 - Eligibility to avail service tax on input services:
The appellant, engaged in manufacturing excisable goods and providing taxable services, faced allegations regarding the eligibility to avail service tax on input services. The Revenue issued show-cause notices based on concerns that the appellant did not satisfy Rule 2(l) of Cenvat Credit Rules 2004 and failed to maintain separate accounts for taxable and exempted services. The appellant contended that trading was not an exempted service before 01.04.2011 and argued that trading activities did not fall under exempted services as defined under the Cenvat Credit Rules. The appellant emphasized that trading goods were not covered under the rules, asserting their engagement in manufacturing and providing taxable services.

Issue 2 - Compliance with Rule 2(l) of Cenvat Credit Rules 2004:
The adjudicating authority confirmed the proposals in the show-cause notice, leading to an appeal by the appellant. The Commissioner Central Tax (Appeals-II) partially allowed the appeal, reducing the penalty imposed. The appellant, dissatisfied with the order, appealed further. During the hearing, the appellant argued that the show-cause notices issued in 2014 for the period of January 2010 to December 2010 lacked allegations of suppression, fraud, or misstatement, preventing the Revenue from invoking the extended period of limitation. Citing a previous Tribunal decision in their favor, the appellant contended that the extended period was not sustainable without evidence of suppression.

Issue 3 - Compliance with Rule 6(2) or Rule 6(3) of Cenvat Credit Rules:
The appellant's advocate highlighted that the appellant did not contest the demand on merits or limitation before the lower appellate authority. However, the appellant's position was that they did not give up their claim on merits or limitation. Referring to previous judgments, the appellant argued that the demand was barred by limitation, as there was no suppression, fraud, or misstatement to warrant invoking the extended period. The Tribunal found that the entire demand was time-barred and set aside the order, ruling in favor of the appellant based on the limitation issue without delving into the merits.

Issue 4 - Invocation of extended period of limitation:
The Tribunal's decision was based on the lack of findings of suppression, fraud, or misstatement to justify extending the limitation period. Citing Supreme Court judgments, the Tribunal ruled that as the appellant had been issued show-cause notices for the earlier period and there was no evidence of suppression, the extended period of limitation could not be invoked. The Tribunal allowed the appeal solely on the limitation issue, setting aside the impugned order and providing consequential relief to the appellant.