2017 (11) TMI 887 - AT - Service Tax

CENVAT credit - services provided to Special Economic Zone - C & F Agent services - denial on the ground that it has been entirely used for trading activity? - Held that - Hon ble High Court of Madras in the case of M/s. Ruchika Global Interlinks vs. CESTAT & CCE 2017 (6) TMI 635 - MADRAS HIGH COURT has clearly held that for trading activity appellant is not entitled to the CENVAT credit of service tax - the CENVAT credit of service tax paid on trading activity carried out by the appellant rightly denied. Demand of interest and penalty - Held that - the appellant has not paid or short-paid the service tax by reason of collusion wilful misstatement suppression of fact or contravention of the provisions of Rule with intend to evade payment of service tax and they have been filing the returns regularly - no penalty is imposable on the appellant u/s 78 of the FA because the condition for imposing the penalty under Section 78 is not present in this case and it was an interpretational issue and therefore the penalty under Section 78 on the appellant dropped. Appeal allowed in part.

Summary

Issues:
1. Denial of CENVAT credit for services provided to Special Economic Zone (SEZ).
2. Denial of CENVAT credit for trading activities.

Analysis:

Issue 1: Denial of CENVAT credit for services provided to SEZ
The appellant appealed against the Commissioner (A)'s order denying CENVAT credit used for services provided to SEZ units. The appellant argued that services to SEZ units are export services, not exempted services. They cited SEZ Act, 2005, and Notification No.3/2011 to support their claim. The appellant relied on precedents like Tata Consulting Engineers Ltd. and Sobha Developers Ltd., emphasizing that CENVAT credit need not be reversed for services to SEZ units. The Tribunal agreed with the appellant, setting aside the denial of CENVAT credit amounting to Rs. 1,70,754.

Issue 2: Denial of CENVAT credit for trading activities
Regarding denial of CENVAT credit for trading activities, the appellant contended that trading is not an exempted activity and should not lead to credit denial. They argued that the law during the relevant period did not classify trading as an exempted service under Rule 2(e) of CENVAT Credit Rules. The appellant referenced cases like Vijayanand Roadlines Ltd. and Krishna Auto Sales to support their argument. However, the respondent argued that trading is not a service, citing cases like M/s. FL Smidth Pvt. Ltd. and Synise Technologies Ltd. The Tribunal, following M/s. Ruchika Global Interlinks case, upheld the denial of CENVAT credit for service tax paid on trading activities.

Penalty and Interest
The Tribunal found no grounds for imposing penalties under Section 78 of the Finance Act, as there was no wilful misstatement or suppression of facts. The appellant's regular filing of returns and the interpretational nature of the issue led to the dropping of penalties. Consequently, the appeal was partially allowed for services to SEZ units but rejected for trading activities, with penalties under Section 78 being dropped.

This detailed analysis highlights the key arguments, legal precedents, and the Tribunal's decision on each issue, providing a comprehensive overview of the judgment.