2022 (8) TMI 877 - AT - Service Tax

Tribunal overturns Commissioner's order, rules in favor of appellant on tax demands

The Tribunal set aside the Commissioner's order, allowing the appeal. The demands of Rs. 28,56,667 and Rs. 5,98,82,040, along with interest and penalty, ... CENVAT Credit - input services used in manufacture of dutiable goods/taxable services as well as in trading activity (exempted service) - demand of amount paid in excess of 20% of service tax payable from the credit account - period from April 2006 to March 2008 - demand of 8%/6% of the value of traded goods (exempted service) - period from April 2008 to March 2011 - whether the Explanation to rule 2(e) is prospective in nature as submitted by the appellant or it merely clarifies that trading activities were always an ‘exempted service’, as is contended by the department? - Extended period of limitation - HELD THAT:- To understand the scope of ‘Explanation’, it would be useful to refer to the decision of the Supreme Court in Sedco Forex [2005 (11) TMI 25 - SUPREME COURT]. The Supreme Court clarified that if ‘Explanation’ widens the scope of the main provision, then it would be presumed to have only prospective effect, unless a contrary intention is expressed by the legislature. The same view was expressed by the Supreme Court in Martin Lottery. The Supreme Court, in effect, held that the use of the phrases, ‘it is hereby declared’ or ‘removal of doubts’, in itself will not enable a presumption to be drawn that the Explanation is retrospective. The Tribunal in Trent Hypermarket [2019 (6) TMI 1327 - CESTAT MUMBAI], while dealing with the definition of ‘exempted service’ under rule 2(e) of the Credit Rules, held that trading cannot be treated as an ‘exempted service’ for the period prior to 01.04.2011 and the Explanation added on 01.04.2011 was prospective and not retrospective. Thus, it is, therefore, clear that trading was not an ‘exempted service’ prior to 01.04.2011. The demand confirmed in the impugned order cannot, therefore, be sustained and is liable to be set aside - Even otherwise, the demand for the period 2006 to 2008 would not survive as there was no restriction on availment of credit as the restriction was in respect of utilization. It also needs to be remembered that for not exercising the option under rule 6 of the Credit Rules, the option of payment of 6/8 percent of trading of goods (‘exempted service’) cannot be thrust upon the appellant. This view finds support from the decision of the Telangana High Court in Tiara Advertising [2019 (10) TMI 27 - TELANGANA AND ANDHRA PRADESH HIGH COURT] and the decision of the Tribunal in Agrawal Metal Works [2022 (7) TMI 924 - CESTAT NEW DELHI]. Thus, the demand of Rs. 5,98,82,040/- for the period from April 2008 to March 2011 cannot also be sustained. It is not necessary to examine the contention advanced by the learned counsel for the appellant regarding invocation of the extended period of limitation. Appeal allowed. Issues:1. Demand of Rs. 28,56,667/- under Rule 6(3)(c) of the CENVAT Credit Rules, 2004.2. Demand of Rs. 5,98,82,040/- under Rule 6(3)(i) of the CENVAT Credit Rules, 2004.3. Interest on the aforesaid amounts under Section 75 of the Finance Act, 1994.4. Penalty of Rs. 6,27,38,707/- under Section 78 of the Finance Act, 1994.5. Whether trading activities qualify as 'exempted service' prior to 01.04.2011.6. Retrospective effect of the Explanation added to Rule 2(e) of the CENVAT Credit Rules, 2004.7. Invocation of the extended period of limitation.Issue-wise Detailed Analysis:1. Demand of Rs. 28,56,667/- under Rule 6(3)(c) of the CENVAT Credit Rules, 2004:The first demand pertains to the period from April 2006 to March 2008. The department's stand was that the appellant utilized CENVAT credit in excess of 20% of service tax payable on taxable output services from the CENVAT credit account, violating Rule 6(3)(c) of the CENVAT Credit Rules. The appellant contended that 'trading' was not an 'exempted service' prior to 01.04.2011, and the Explanation added to Rule 2(e) is prospective in nature. The Tribunal agreed with the appellant, referencing the Supreme Court's rulings in Sedco Forex and Martin Lottery, which held that if an Explanation widens the scope of the main provision, it is presumed to have only prospective effect unless a contrary intention is expressed by the legislature. The Tribunal also referenced its own decisions in Trent Hypermarket and Lenovo India, which supported the appellant's view. Consequently, the demand of Rs. 28,56,667/- was not sustainable.2. Demand of Rs. 5,98,82,040/- under Rule 6(3)(i) of the CENVAT Credit Rules, 2004:The second demand pertains to the period from April 2008 to March 2011. The department's stand was that the appellant failed to follow the procedure prescribed under Rule 6(ii) and 6(iii) of the CENVAT Credit Rules, and thus, the demand of 6%/8% of the value of exempted services was justified. The appellant argued that the option of payment of 6/8% of trading of goods (exempted service) cannot be thrust upon them for not exercising the option under Rule 6. The Tribunal agreed with the appellant, referencing the Telangana High Court's decision in Tiara Advertising and the Tribunal's decision in Agrawal Metal Works. Thus, the demand of Rs. 5,98,82,040/- was not sustainable.3. Interest on the aforesaid amounts under Section 75 of the Finance Act, 1994:Given that the demands under Rule 6(3)(c) and Rule 6(3)(i) were not sustainable, the interest on these amounts under Section 75 of the Finance Act, 1994, also could not be sustained.4. Penalty of Rs. 6,27,38,707/- under Section 78 of the Finance Act, 1994:Since the demands themselves were not sustainable, the penalty of Rs. 6,27,38,707/- imposed under Section 78 of the Finance Act, 1994, also could not be sustained.5. Whether trading activities qualify as 'exempted service' prior to 01.04.2011:The Tribunal held that trading was not an 'exempted service' prior to 01.04.2011. This was based on the definition of 'exempted service' under Rule 2(e) of the CENVAT Credit Rules and the Tribunal's own decisions in Trent Hypermarket and Lenovo India.6. Retrospective effect of the Explanation added to Rule 2(e) of the CENVAT Credit Rules, 2004:The Tribunal held that the Explanation added to Rule 2(e) of the CENVAT Credit Rules on 01.04.2011 was prospective and not retrospective. This was based on the Supreme Court's rulings in Sedco Forex and Martin Lottery, which held that an Explanation that widens the scope of the main provision is presumed to have only prospective effect unless a contrary intention is expressed by the legislature.7. Invocation of the extended period of limitation:Given that the demands were not sustainable, it was not necessary to examine the contention regarding the invocation of the extended period of limitation.Conclusion:The impugned order dated 28.03.2013 passed by the Commissioner was set aside, and the appeal was allowed. The demands of Rs. 28,56,667/- and Rs. 5,98,82,040/-, along with the interest and penalty, were not sustainable. The Tribunal held that trading was not an 'exempted service' prior to 01.04.2011, and the Explanation added to Rule 2(e) of the CENVAT Credit Rules on 01.04.2011 was prospective in nature.