TMI Blog2014 (7) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the irregularly availed credit reversed by the assessee. The amount of penalty is also confirmed subject to an option that shall be provided to the appellant, to remit 25% of the penalty together with the specified interest, within thirty days from the date an order is passed by the Respondent determining the interest liability afresh, under Rule 14 of the Cenvat credit Rules read with Section 75 of the Finance Act, 1994, and the order is communicated to the appellant. This option shall be provided by the adjudication Authority in the order to be passed, pursuant to this remand - Decided partly in favour of assessee. - Appeal No. 61 of 2008 , Appeal No. 62 of 2008 - Final Order No. 52365-52366/2014 - Dated:- 6-6-2014 - Mr. G. Raghuram and Mr. Rakesh Kumar, JJ. For the Appellant : Shri R. Krishnan, Advocate For the Respondent : Shri Govind Dixit, DR JUDGEMENT Per: Justice G. Raghuram: The assessee is the appellant in both appeals, preferred against adjudication orders dated 21.11.2007 and 15.11.2007 passed by the Commissioner, Customs and Central Excise, Noida. 2. The Order dated 21.11.2007 disallowed the availed CENVAT credit of Rs.1,20,40, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led cenvat credit earned on input services utilized for trading activities; (b) Services utilized for trading of computers etc. would not amount to services utilized/ consumed in the rendition of output services, since output services were provided after culmination of trading activities i.e. sale and delivery of computers etc. to customers. Input services in respect of which cenvat credit was taken stood utilized prior to delivery of computers and cannot be said to have been consumed/ used in relation to rendition of output services; (c) Assessee treated trading as an exempted service and on this basis utilized cenvat credit for payment of Service Tax to the extent of 35% or 20% as the case may be, payable on the taxable output services provided. Since trading is neither a service nor amounts to an exempted service, cenvat credit earned on an input services of trading cannot be considered as credit earned on exempted service; (d) Consequently, cenvat credit taken in respect of input services of trading is liable to be reversed in toto and the inadmissible cenvat credit utilized for payment of Service Tax on taxable output services liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther services utilized for despatching goods to customers premises, is integral to the post trading rendition of taxable services such as installation, commissioning, repair, maintenance etc.; and thus credit taken during 01.07.2003 to 09.09.2004 is unexceptionable; and for the period subsequent to 10.09.2004, the position is the same. Assessee alternatively claimed that since credit was utilized only to the extent of 35% or 20% of the payable service tax, as the case may be, interest should be calculated only on amount of credit actually utilized; that there is a distinction between taking of credit and utilization of credit and it is utilization alone that results in lesser remittance of tax in cash to Government and not taking of credit in assessees books. Therefore, interest should be calculated only on the amount actually utilized, if wrongly utilized, but not on the gross credit wrongly availed. Assessee contended (in both cases) that no penalty should be imposed since availment of credit on the assumption that trading is an exempted activity was on account of interpretation and penalty is leviable only for wilful and deliberate conduct and not where availment of credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput service and renders output services which are chargeable to service tax as well as exempted or non-taxable services, as the case may be, he shall maintain separate accounts for receipt and consumption of input services meant for consumption in relation to rendering of taxable output services and input services meant for consumption in relation to rendering of exempted or non-taxable services, as the case may be. Sub-rule (5) of Rule 3 enacts that where a service provider opts not to maintain separate accounts, as stipulated in sub-rile (4), he shall be allowed to utilize service tax credit for payment of service tax on any output service only to an extent of an amount not exceeding 35% of the amount of service tax payable on such output services. 6. On a true and fair construction of the relevant provisions of the Credit Rules, 2002, it is apparent that credit could be taken on an input service falling in the same category of taxable service as the output service in respect of which the service tax liability arises and discharged from the available credit. It is axiomatic that trading in goods is neither a taxable service and could not, in the absence of a legislative / sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit Rules. 10. The appellant/ assessee not only availed cenvat credit of input services used/ consumed for its trading, by debiting in its cenvat credit account to that extent but had also utilized the credit for discharging its service tax liability for having provided taxable services, to the extent of 35% upto 10.09.2004 and 20% thereafter of the service tax payable on such taxable services, clearly contrary to the provisions of the 2002 Credit Rules and the 2004 Credit Rules, as the case may be. 11. On 29.04.2011, by Circular No. 943/4/2011-CX., dated 29.04.2011, consequent on the amendment introduced w.e.f. 01.04.2011 (noticed supra). Twelve clarifications were issued. Ld. Counsel for the appellant relies on the clarifications set out at Sl. No. 6 and 7. The clarification at Sl. No. 6 states that trading being an exempted service, credit of any inputs or input services used exclusively in trading cannot be availed. Clarification No. 7 specifies that trading is an exempted service and therefore credit of any inputs or input services used exclusively in trading cannot be availed; credit of common inputs and input services could be availed subject to restriction of utiliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent. The decisions of Delhi and Gujarat High Courts referred to above clearly rule that an Adjudication Authority should explicitly specify the option available to the assessee under Section 11AC of the Act (which is similar to the option available under Section 78 of the Finance Act, 1994). The Gujarat High Court in Gopal Fibres Pvt. Ltd. also referred to a Board Circular dated 22.05.2008 clarifying that in all cases where penalty under Section 11AC of the Central Excise Act is imposed, provisions contained in the first and second proviso of this Section should be mandatorily mentioned in the adjudication order. 14. In the light of the decisions and pronouncements of High Courts adverted to in the preceding paragraph, the assessee was required to be provided an option to remit 25% of the penalties imposed under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994, within thirty days from the date of the adjudication order, alongwith interest and the amount of cenvat credit disallowed, after taking credit for the service tax and interest if any already remitted. It requires to be noted that the total amount of disallowed cenvat credit was alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. From the judgment in Bill Forge Pvt. Limited, it is clear that liability to interest under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 75 of the Finance Act, 1994 would arise only on that amount of cenvat credit, both debited in assessee s books of accounts and utilised (taken) for remittance of the assessees tax liability. There is no discussion in the adjudication order on this aspect of the matter. We, therefore, remit the matter to the respondent -Adjudication Authority for computation of the amount of interest liability, on the basis of the actual amount of cenvat credit utilised for discharging its service tax liability on the taxable services provided, by the assessee. 17. In the result, the impugned Adjudication orders are sustained to the extent of the asssessed demand of cenvat credit and appropriation of the irregularly availed credit reversed by the assessee. The amount of penalty is also confirmed subject to an option that shall be provided to the appellant, to remit 25% of the penalty together with the specified interest, within thirty days from the date an order is passed by the Respondent determining the interest liability afresh, under Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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