Tribunal rules in favor of appellant on Cenvat Credit disallowance issue

The Tribunal allowed the appeal, setting aside the demand and penalty imposed on the appellant for disallowance of Cenvat Credit on input services used for both trading and taxable output services. The Tribunal held that as trading was not classified as a service before 2011, separate accounts were not required. The appellant was advised to segregate credit quarterly based on standard accounting principles to quantify the credit attributable to trading activity. Additionally, the Tribunal ruled that the demand for the period 2005-2009 was time-barred as there was no evidence of willful misstatement to invoke the extended period.

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Issues:
1. Disallowance of Cenvat Credit on input services for trading and taxable output services.
2. Requirement of maintaining separate accounts for input services used in common for trading and output services.
3. Applicability of extended period for raising demands.

Detailed Analysis:
1. The appeal challenges the disallowance of Cenvat Credit on input services used for both trading and taxable output services. The appellant, engaged in vehicle sales and services, faced a show cause notice for wrongly availing credit on mobile phone bills. The department contended that as the main activity was trading, the credit was inadmissible due to lack of separate accounts. The order confirmed the demand and penalty, upheld in appeal. The Tribunal now hears the case.
2. The department argued that mobile phones were mainly used for sales promotion, making trading the primary activity. The appellant maintained that trading was not an exempted service during the disputed period, hence separate accounts were unnecessary. The appellant claimed entitlement to full credit for service tax paid on mobile phones.
3. The Tribunal noted that trading, not classified as a service before 2011, did not require separate accounts. However, credit for trading activity was inadmissible. Referring to a similar case, the Tribunal suggested segregating credit quarterly based on standard accounting principles. The matter was remanded for quantifying the credit attributable to trading activity.
4. On the issue of limitation, the audit in 2008 led to a demand for the period 2005-2009. The department alleged suppression, while the appellant argued lack of willful misstatement. The Tribunal ruled that extended period invocation required evidence of intent to evade duty, which was absent in this case. Thus, the demand was time-barred, and the appeal was allowed, setting aside the impugned order.

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