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2015 (6) TMI 271 - CESTAT MUMBAI

2015 (6) TMI 271 - CESTAT MUMBAI - 2015 (39) S.T.R. 903 (Tri. - Mumbai) - Demand of Cenvat Credit - Business Auxiliary Services - Trading activity - Held that:- The appellant is not an output service provider in respect of trading. - Mercedes Benz judgment [2014 (4) TMI 12 - CESTAT MUMBAI] also held that the formula introduced in Rule 6 in 2011 cannot be applied retrospectively. Following this judgment, I hold that the amount of credit to be disallowed was correctly computed by the adjudicating .....

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appellant have not declared in their ST-3 returns that the input service 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 .....

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at 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 held by the adjudicating authority. - Decided against assessee. - Appeal No.ST/85482/14 & ST/86082/14 - Final Order Nos. A/1217-1218/2015-WZB/SMB - Dated:- 8-5-2015 - P S Pruthi, Member (T),J. For the Appellant : Shri P S Joshi .....

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appeal is filed by the Revenue against the same Order on the ground that the Commissioner (Appeal) has erred in modifying the demand confirmed by the adjudicating authority for the period 2006-07 to 2010-11 from ₹ 21,05,690/- and reducing the same to ₹ 6,97,822/- and in reducing the penalty to 50% of the amount of Cenvat Credit demanded. 2. The appellant is engaged in the provision of "Business Auxiliary Services (BAS) and IT Software Services as well as trading of scrap. They .....

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the receipt of adjudication order in terms of Section 78 of the Finance Act read with Rule 15 (3) of the Cenvat Credit rules, The credit was disallowed in proportion of trading turnover (i.e. sales price of traded goods) to the total turnover (i.e. trading plus value of output service). In appeal proceedings, the Commissioner (Appeals) decided that, since with effect from 01/04/2011 the definition of exempted services was amended to include trading and "method of computation of value of inp .....

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hat 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 t .....

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Ltd., vs. CCE, Pune I- 2014 (36) STR 704 (Tri-Mumbai) -, is also wrong. In the absence of any provision disallowing cenvat credit used in trading, the function of legislature cannot be taken over by any other authority. 4.1 The learned Counsel relies on the decision of the Tribunal in the case of Ghatge Patil Auto Farm Machinization vs. CCE, Kolhapur - Appeal No.ST/85782/13 and in the case of CCE, Tirupathi vs. Shariff Motors - 2010 (18) STR 64 (Tri-Bang) which held that credit cannot be denied .....

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1 that the definition of exempted service included trading activity Hence, as the department itself was not clear on the treatment of trading activity vis-a-vis Cenvat Credit, invoking the extended time period is not justified. He relies on the Supreme Court judgement in the case of Sai Sathya Sai Inst., High Medl. Sciences vs. UOI - 2003 (158) ELT 675 (SC) to state that it was for Government to impose conditions while considering fulfilment of exemption or otherwise. And in the present case, th .....

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rise at all. Therefore, the apportionment of credit which goes into the trading activity was correctly done by the Commissioner following the Tribunal decision in the case of Mercedes Benz India Pvt. Ltd., (supra). He submits 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 se .....

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he 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 service. Even the inclusive part of definition of input service under Rule 2(l) onl .....

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ed service and dutiable service. Since trading activity cannot be considered a service at all, the question of maintenance of separate accounts does not arise. Further, he also submits that services such as advertisement, security, courier, telephone, banking and professional charges are used commonly for trading activity as well as maintenance and repair, commissioning and installation services. It is not correct to say that these services are not required or have not been utilized for trading .....

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es, 2002. It is his contention that since trading activity is not at all a service, the provisions of Rule 6 of Cenvat Credit Rules and provisions of Service Tax Credit Rules cannot be applied. 4. The issues to be decided in this case are : (i) Whether trading activity can be called a service. (ii) Whether Rule 6 of Cenvat Credit Rules, 2002 and Service Tax Credit Rules, 2002 would be applicable when input services are used in respect of trading activity as well as taxable services. (iii) if Cen .....

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nsidered 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 manufac .....

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x is payable." 7. Sub-rule (3) of Rule 6 provides that where output service provider does not maintain separate account, he has to follow the procedure or avail the options available under that Rule. But this rule is applicable only when the output service provider is providing services which are chargeable to service tax and as well as exempted services. Similar is the situation when we examine Rule 3 of Service Tax Credit Rules, 2002. Both these rules clearly speak of exempted services. R .....

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s the reason why provisions have been made in Cenvat Credit Rules and Service Tax Credit Rules to cover such situations where an assessee is providing both exempted and taxable services. In cases where an assessee is undertaking activities which cannot be called a service or which cannot be called manufacture, that activity goes out of the purview of both Central Excise Act as well as Finance Act, 1994. Therefore, we have a situation where an assessee would not be eligible to take input Service .....

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ilment of credit. Naturally this cannot be done in advance since it may not be possible to forecast what would be the quantum of trading activity and other activity which is liable to service tax. The only obvious solution which would be legally correct appears to 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 .....

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hout 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 servi .....

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nded after Rule 6(3D) of Cenvat Credit Rules, 2004. The said provision as noted earlier was inserted with effect from 1.4.2011. The argument of the ld.Sr.Advocate is that the said explanation only provides the procedure for computation and since this change is procedural in nature it will have a retrospective effect. Ld.Sr. advocate also argued that in case of traded goods, the value addition by the appellant is only the difference between the sale price and the purchase price of the goods which .....

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r services and it will not be appropriate to take the value addition. In support of his contention that in case of traded goods only value addition should be taken, Ld.Sr. advocate took us through the judgment of the Court (5 th Chamber) dated 14.7.1998 in case C-172/96 which was passed on a reference under Article 177 of the EC Treaty by the High Court of Justice of England and Wales, Queen's Bench Division. We have gone through the said judgment carefully. In the said case, the issue was h .....

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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 tr .....

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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 properties for earlier period and hence determine the wealth tax. It is in this context that the Hon'ble Supreme Court has taken a view that the same would be applicable to all the proceedings pending at the time of its enactment. In the present case, as mentioned earlier, it is not the comput .....

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clusion that clause (c) of Explanation 1 has no application for determining the apportionment of the credit of service tax on input services, the question is how to determine the same. We find that the major amount pertains to the services in relation to the advertisement, even management, business auxiliary service and business support service. When the appellant is spending certain amounts for sales promotion such as advertisement of the cars and consequent to the said expenditure he has certa .....

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ins to the imported and traded cars then if the input credit of 10 crores is available then 7 crore should be considered for the manufactured cars in India and credit of ₹ 3 crore should be considered pertaining to imported and traded cars. If we go by the argument of the Ld.Sr.Advocate then the value of traded cars will have to be taken as ₹ 30 crores and total turnover will be considered as ₹ 730 crores and credit of ₹ 10 crores will have to have apportioned in the rati .....

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liary 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 crit .....

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r for the said motor cycles. The issue is whether the Respondents are eligible for availing credit of service tax paid on transportation of motor cycles from the factory to the show room as input service and utilized it as output service for payment of service tax on the services provided as an authorized service station. The Original authority denied the credit on the ground that input service is applicable only if the input and output services are of the same category. Therefore the credit was .....

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an output service, or (ii) ....... As per the above definition for any service to be qualified as input service, it should be used for providing an output service. In the instant case the service provider is availing credit of service tax paid on the amount incurred for inward transportation of vehicles to be sold from the show room. The input service is related only to the sale of the vehicles. It is not at all related nor required for doing servicing on the vehicles to be received much later .....

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ice (inward transportation of new vehicles) of the show room to output service of service station, i.e. servicing of motor vehicles. (c) In other words the services like receiving the new 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 se .....

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. 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. The Respondents themselves are also service providers as authorized service dealers. As authorized service dealers, they are req .....

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y carefully. The Respondents are paying service tax on GTA services on the service tax paid on transportation of the vehicles to their show room. They are also providers of output service. This output service is servicing of various vehicles. The Revenue has taken a very narrow view that the Respondents might be servicing even vehicles sold by other authorized dealers. In our view, unless the vehicles are received and sold, there would not be any servicing of the same. Moreover the definition of .....

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input service credit for paying tax on GTA service. IN the present case the issue is of denial of service tax credit on input services used for trading. The appellant is not an output service provider in respect of trading. I also find that Mercedes Benz is a later judgment and therefore, I am inclined to follow it. 6.2 The Mercedes Benz judgment also held that the formula introduced in Rule 6 in 2011 cannot be applied retrospectively. Following this judgment, I hold that the amount of credit t .....

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ssue 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 Audi .....

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