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Synise Technologies Ltd Versus Commissioner of Central Excise, Pune, Commissioner of Central Excise, Pune Versus Synise Technologies Ltd

2015 (6) TMI 271 - CESTAT 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 authority. The reliance by the learned Counsel on the case of Sai Sathya S .....

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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 the same circumstances as far as the issue of time bar is concerned.

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dy 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 For the Respondent : Shri Sanjeev Nair, Examiner (AR) ORDER Per: P S Prut .....

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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 availed Cenvat Credit of service tax paid on common services received for .....

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t 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 input services used for trading was prescribed in Rule 6 (3A), the same formu .....

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tially 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 the total trading turn over was considered to deny the Cenvat Credit on the .....

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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 even if part of the input service credit is used in paying service tax on .....

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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, there was no restriction in using credit for trading. He relied on the Tribu .....

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ading 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 service. Therefore, the facts are distinguishable. The learned DR also submi .....

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allowed 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) only includes services used in the business of providing output service. Trad .....

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ed 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 activity also. He submits that entire credit has been disallowed without t .....

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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 Cenvat Credit Rules and Service Tax Credit Rules are not applicable, the proc .....

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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 manufacturer or provider of output service shall maintain separate accounts for r .....

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ervice 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. Rule 3 of Service Tax Credit Rules also covers non taxable services. Since .....

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ice 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 tax credit on an output which is neither a service nor excisable goods and .....

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t 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 of payment of service tax of output service. This proposition is not again .....

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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 service during the period prior to 1.4.2011 and the amended provision with effe .....

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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 is not so in the case of manufactured goods. On a query by the Bench that .....

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upport 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 how to determine the turnover for purpose of value added tax in case of tra .....

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e 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 traded goods for apportioning the credit of the service tax on input service .....

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termine 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 computation of tax but apportionment of the credit of service tax on input servi .....

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g 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 certain turnover of the cars out of which some of the cars manufactured indigen .....

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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 ration of 700:30 or 70:3. Obviously, this would be leading to incorrect result .....

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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 criterion should have been same viz. based upon turnover or value addition). W .....

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ible 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 denied. The Respondents approached the Commissioner (Appeals). The Commis .....

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rvice 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 to their sale and hence cannot be treated as input service for providing o .....

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vice 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 service at station is totally a different activity i.e. servicing the old/us .....

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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 required to undertake servicing of the vehicles. The Revenue's contention .....

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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 the input service is broad enough to cover the input service availed by t .....

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he 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 to be disallowed was correctly computed by the adjudicating authority. The .....

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ra) 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 Audit not pointed out the said wrong credit, the amount would not have been re .....

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