2018 (3) TMI 629 - AT - Service Tax

Appellant wins case on credit availed for common input services used in trading activities

The Tribunal ruled in favor of the appellant, setting aside the demand and penalties imposed for availing credit on common input services used for both ... Limitation - extended period of limitation - suppression of facts with intent to evade - CENVAT credit on inputs used for trading - exempted service - trading activity - bonafide belief - compliance with CENVAT Credit Rules and Rule 6(2) and (3) - disclosure and departmental audit verificationLimitation - extended period of limitation - suppression of facts with intent to evade - disclosure and departmental audit verification - Whether the show cause notices invoking the extended period are time-barred because there was no suppression with intent to evade payment of service tax - HELD THAT: - The Tribunal found that prior to 1.4.2011 the classification of trading activity was unsettled and there were conflicting decisions on whether trading was an exempted service. The appellants maintained separate records for common inputs used in trading and for taxable output services, filed service tax returns regularly, and had been subjected to internal and departmental audits (including CERA) during which no objection was raised to the availment of credit on such common inputs. On these facts the Tribunal held that the appellants acted under a bonafide belief and that there was no evidence of deliberate suppression of facts with intent to evade service tax. In the absence of such suppression with intent, invocation of the extended period of limitation was not justified and the show cause notices are time-barred. [Paras 5, 6]Show cause notices invoking the extended period of limitation are time-barred; impugned order set aside and appeals allowed on limitation groundFinal Conclusion: The Tribunal allowed the appeals by holding the proceedings barred by limitation, concluding there was no suppression with intent to evade and that the appellants had a bonafide belief supported by disclosure and audits; consequential relief to follow. Issues involved:1. Availment of credit on common input services used for trading activities and output services.2. Eligibility of credit on trading activities as exempted services.3. Grounds of limitation in the case.4. Suppression of facts with intent to evade payment of service tax.5. Interpretation of provisions of law regarding credit availment.Analysis:Issue 1: Availment of credit on common input servicesThe appellants were registered for providing various output services and were availing credit on common input services used for both trading activities and output services. Show cause notices were issued for the period from April 2009 to March 2011, confirming the demand along with penalties. The appellant argued that they maintained separate accounts for common inputs and output services, believing trading activity to be an exempted service. They contended that there was no intention to evade payment, as the credit was availed based on a wrong interpretation of the law. The appellant's regular filing of service tax returns and lack of objections during audits supported their claim of no deliberate attempt to evade payment.Issue 2: Eligibility of credit on trading activitiesThe appellant argued that prior to April 2011, there was confusion regarding whether trading activity could be considered an exempted service. They cited conflicting judgments and maintained that they believed in good faith that trading activity was exempted. The department contended that trading activity was not exempted before April 2011 and that the credit availed was against the law. The jurisdictional High Court's decision was referenced to support this argument.Issue 3: Grounds of limitationThe main contention raised by the appellant was regarding the period of limitation. Show cause notices were issued for a period from April 2009 to March 2011, invoking the extended period of limitation. The appellant argued that during this period, there were conflicting decisions on the exempted status of trading activities. They maintained that their separate record-keeping and regular filing of returns demonstrated their bona fide belief in the exemption status, thus challenging the invocation of the extended limitation period.Issue 4: Suppression of factsThe department argued that there was a clear suppression of facts by the appellant with the intent to evade payment of service tax, justifying the invocation of the extended limitation period. However, the appellant's diligent record-keeping, regular filing of returns, and lack of objections during audits were cited as evidence against the department's claim of suppression of facts.Issue 5: Interpretation of provisions of lawThe Tribunal concluded that the show cause notice was time-barred, setting aside the impugned order and allowing the appeals on the ground of limitation. The Tribunal emphasized that the appellant's actions, including maintaining separate records and regular compliance, did not indicate any deliberate attempt to evade payment of service tax. The lack of evidence supporting the department's claim of suppression of facts led to the decision in favor of the appellant.