2012 (8) TMI 45 - AT - Service Tax

Service Tax Credit Denied for Trading Activities; Clarification on Input Services

The court upheld the decision that a registered dealer engaged in trading activities is not entitled to avail Service Tax credit for input services used ... CENVAT credit for input service - Definition of 'input service' - Use of input service by a manufacturer - Non availability of input credit for trading activities - Trading activity not constituting a taxable service - Reverse charge on freightCENVAT credit for input service - Definition of 'input service' - Use of input service by a manufacturer - Non availability of input credit for trading activities - Whether CENVAT credit of Service Tax paid on freight is admissible in respect of transportation of goods meant for trading by a registered dealer when the same consignments also include inputs for manufacture - HELD THAT: - The Tribunal upheld the Commissioner (Appeals) finding that the definition of input service (Rule 2(1), CENVAT Credit Rules) applies to services used by a provider of a taxable service or by a manufacturer or in relation to the manufacture of final products. A registered dealer engaged in trading is neither a manufacturer nor a provider of a taxable service and therefore does not fall within that definition. The appellants had availed credit of the entire Service Tax paid on freight although part of the freight related to transportation of goods meant for trading. Reliance on the Tribunal's earlier decision in Orion Appliances Ltd (reported) supports the proposition that pure trading activity-being purchase and sale governed by sales tax law-does not constitute a taxable service and cannot be treated as an exempted service for CENVAT credit purposes. Applying these principles, Service Tax credit attributable to transportation of goods for trading is not available to the appellant, even though goods for manufacture and for trading were carried together and freight was discharged under reverse charge. [Paras 3, 4]Service Tax credit in respect of input service attributable to trading activities is not available to the appellant; the Order in Appeal is upheld.Final Conclusion: The appeal is dismissed and the Commissioner (Appeals) order affirmed: credit of Service Tax paid on freight is not admissible insofar as it relates to transportation of goods meant for trading by a registered dealer, since trading activity does not qualify as use by a manufacturer or as a taxable service for purposes of CENVAT credit. Issues:1. Eligibility of Service Tax credit for input services used in manufacturing and trading activities.Analysis:The appeal was filed by M/s Gulf Oil Corporation Ltd. against the order of the Commissioner (Appeals) regarding the eligibility of Service Tax credit for input services used in their manufacturing and trading activities. The appellant argued that since they were granted a single registration for Service Tax, all activities should be considered as manufacturing. They contended that the input service definition allows manufacturers to use input services for any purpose and that there was no provision for pro-rata calculation of Service Tax between manufactured goods and taxable services, especially in cases involving exempted goods or services.The Commissioner (Appeals) found that the appellant had paid Service Tax on the freight charges for both manufacturing and trading activities but was not eligible for credit on the portion related to goods meant for trading purposes. The Commissioner held that the registered dealer engaged in trading activities was not entitled to avail the credit as they were neither manufacturers nor providers of taxable services.The presiding judge agreed with the Commissioner's findings, citing the definition of input service under Rule 2(1) of CENVAT Credit Rules, which specifies that it is for use by a provider of taxable service or a manufacturer. The judge referenced a previous case, Orion Appliances Ltd Vs CST Ahmedabad, which determined that trading activities cannot be considered a service and, therefore, trading activities do not qualify for Service Tax credit. The judge upheld the Order-in-Appeal, concluding that the Service Tax credit for input services attributable to trading activities is not available to the appellant.In conclusion, the judgment clarifies the eligibility criteria for Service Tax credit on input services used in manufacturing and trading activities. It emphasizes that trading activities do not fall under the definition of a service for the purpose of availing Service Tax credit, and therefore, such credits are not available for trading activities. The decision provides a clear interpretation of the law and sets a precedent for similar cases involving the apportionment of Service Tax credits in mixed manufacturing and trading scenarios.