TMI Blog2018 (11) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... - Appeal No. ST/184/2012 - Final Order No. 42732/2018 - Dated:- 30-10-2018 - Ms. Sulekha Beevi C.S., Member (Judicial) And Shri V. Padmanabhan, Member (Technical) Shri Raghavan Ramabhadran, Advocate for the Appellant Shri K. Veerabhadra Reddy, JC (AR) for the Respondent ORDER Per Ms. Sulekha C.S. Brief facts are that the appellants are registered for providing various taxable services under the category of on-line information and database access / retrieval, internet caf , franchise services, etc. They are having centralized service tax registration and are a member of Large Taxpayer Unit. They are also rendering exempted services such as software development, e-learning for corporates and companies etc. during the period prior to 16.5.2008, after which date these services became taxable. As per orders of the Hon ble High Court of Madras, Sify Communications Ltd., (Sifycom) an associate enterprise of appellant got merged with the appellant with effect from 1.4.2008. Prior to merger, Sifycom were filing separate ST-3 returns upto March 2009. Consequent to merger, appellant filed ST-3 returns for the half-year ending September 2009 onwards including th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod prior to merger i.e. 2006 07 and 2007 08 to be ₹ 89,39,470/-. Thus the total demand of ₹ 13,90,14,831/-. The amount already reversed by the appellant was proposed to be appropriated. The show cause notice also proposed to demand interest and impose penalties. After due process of law, the adjudicating authority confirmed the amount of ₹ 13,90,14,831/- along with interest, ordered appropriation of the already reversed amount and imposed equal penalty under Rule 15(4) of CENVAT Credit Rules, 2004. Aggrieved, the appellant is now before this Tribunal. 2. On behalf of the appellant, ld. counsel Shri Raghavan Ramabhadran appeared and argued the matter. He submitted that with effect from1.4.2011, an explanation was introduced to the definition of exempted services under Rule 2(e) wherein it was clarified that trading is an exempted service. The period involved in the present case is from October 2005 to March 2010. He submitted that in the show cause notice, the department has invoked Rule 3 of CENVAT Credit Rules, 2004 for the purpose of denying the credit availed on trading activity. The appellant had reversed the credit attributable to trading as per Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice in para 10 specifically holds that Rule 6 cannot be applied to the facts of the case. He prayed that the appeal may be allowed. 2.2 The ld. counsel also argued on the ground of limitation. He argued that the issue is one of interpretational in nature. There were decisions holding that trading is an exempted service prior to 1.4.2011 and the same has been put to rest by the Hon ble High Court of Madras in Ruchika Global Interlinks (supra). In such scenario, the extended period is not invocable. Further, the proceedings for the disputed period was initiated after scrutinizing the returns filed and therefore the department had definite knowledge of the fact that the appellant is engaged in providing exempt service in the nature of trading. That as per the decision in Nizam Sugar Factory Vs. Commissioner of Central Excise 2006 (197) ELT 465 (SC), thus the extended period cannot be invoked. 2.3 With regard to penalty, he submitted that since the recovery of CENVAT credit is under Rule 14 cannot sustain, the imposition of penalty under Rule 15(4) merits to be set aside. In addition, being an interpretational issue, penalty cannot be imposed. 2.4 Without prejudice, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 4. Heard both sides. 5. The main contention put forward by the ld. counsel for the appellant is that the show cause notice itself cannot sustain for the reason that it invokes Rule 3 of CENVAT Credit Rules, 2004 to disallow the credit whereas the demand is made under Rule 14 of the said Rules disallowing credit attributable to trading as envisaged under Rule 6. Rule 14 speaks about recovery of CENVAT credit which is wrongly availed and utilized. Rule 14 as it stood during the relevant period is reproduced as under:- Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries. 5.1 Rule 14 provides for recovery of wrongly availed credit. It does not mention about Rule 3 or Rule 6. An Explanation was added to Rule 2(e) with effect from 1.4.2011 making trading activity as an exempted service. Corresponding amendments were introduced in Rule 6(3A) as to how to calculat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, no CENVAT credit on service tax paid on input service is taken for those input services which are used in SBUs which provide exempted service or involved in trading activity. The input services that are common are accounted under the SBUs of Finance, Human Resource, Administration or Corporate and the credit accounted under common input services. The finance department consolidates all the transactions and prepared periodical financial statements and reports required for meeting various statutory compliances. 5.2 The earlier proceedings were initiated alleging that they have not maintained separate books of account for taxable and exempted services as required under Rule 6(2) and thus have utilized credit in excess of 20% as provided in Rule 6(3) of CCR, 2004. The Tribunal vide Final Order No. 42328/2018 dated 31.8.2018 has upheld the demand on this score by holding the issue against the appellants. 5.3 In the present show cause notice, the credit availed on trading is sought to be disallowed. The main contention put forward by appellant is that the department having not invoked Rule 6 of CCR,2004, cannot disallow the proportionate credit availed on trading. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e service on which service tax was not leviable under section 66 of the Act . Based on this conclusion, the Hon ble High Court held as under:- 11. Having regard to the rule position and given the admitted fact that no separate accounts were maintained by the appellant, with regard to the taxable and non-taxable services, clause (c) of sub-rule 3 of Rules 6 of 2004 Rules would apply . 6.2 It is therefore obvious that the Hon ble High Court was only addressing the aspect of whether by invoking Rule 6(3) trading would be exempted services even prior to 1.4.2011. However, in the instant case, what is alleged in the show cause notice is that as per Rule 2(l) of the CENVAT Credit Rules, 2004, input service means any service used for providing output service . As trading activity undertaken by the appellant is not taxable service, hence the appellant is not eligible to avail credit on the alleged / impugned input service. This being so, the appellants have clearly fallen foul of Rule 3 of the CENVAT Credit Rules, 2004 since that is the particular provision which lays down the types of duties or taxes or cesses suffered on input, input services etc. which alone can be availed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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