2024 (2) TMI 965 - AT - Service Tax

Service tax demand upheld on common input services but excess credit utilization demand dropped under Rule 6(3)(c)

Rishi Kiran Logistics P Ltd Versus C.C.E. & S.T. -Rajkot And C.C.E. & S.T. -Rajkot Versus Rishi Kiran Logistics P Ltd

CESTAT Ahmedabad held that dropping demand of Rs. 59,32,265/- for excess 20% credit utilization under Rule 6(3)(c) of Cenvat Credit Rules, 2004 was ... Reversal of Cenvat Credit - Dropping of demand proposed in SCN - utilization of excess of 20% of the credit in violation of Rule 6(3)(c) of Cenvat Credit Rules, 2004 - demand of service tax on providing taxable output services as well as generation/sale of electricity at Tamil Nadu and sale of raw slat - time limitation. Whether the dropping of the demand of Rs. 59,32,265/- which was proposed in the show cause notice alleging that the assessee has utilised in excess of 20% of the credit in violation of Rule 6(3)(c) of Cenvat Credit Rules, 2004 is legal and proper? - HELD THAT:- The very same issue was considered by the Tribunal in the case of DURAFLEX SERVICES & CONSTRUCTION TECHNOLOGIES LTD VERSUS CCCE & ST, VISAKHAPATNAM - I [2019 (3) TMI 246 - CESTAT HYDERABAD]. The Tribunal observed in the said case that an assessee during the said period was not barred for from taking credit but was only barred utilizing it. Further an assessee would be free to utilize remaining 80% in the subsequent financial year. Similar view was considered by the Tribunal in the case of M/s Tinna Oils and Chemicals Ltd. [2020 (2) TMI 1441 - CESTAT HYDERABAD]. It was observed that the Tribunal post 01.04.2008 the said provision restricting the utilization of credit was amended and the bar of utilizing credit was omitted. After such lapse of time it did not make any difference whether the asssessee had utilized the credit in excess of 20% prior to 01.04.2008 and therefore the demand was set aside. In the present case the SCN has been issued in this regard for the period 2007-08. After such lapse of time, the demand raised alleging that the assessee has utilized in excess of 20% prior to 01.04.2008 appears to be purposeless as the assessee would be eligible to utilize the entire credit in subsequent financial years - the order passed by the Original authority dropping the demand does not require any interference. This issue is found in favour of the assessee and against the Revenue. Consequently, the appeal filed by the department requires to be dismissed. Confirmation of the demand of Service tax to the tune Rs. 72,18,957/- - providing taxable output services as well as generation/sale of electricity at Tamil Nadu and sale of raw slat - HELD THAT:- With effect from 01.04.2011 ‘trading’ is included in the definition of exempted services. The assessee in the present case, has availed the credit of service tax paid on input services in the nature of Telephone Services, Mobile Services, Courier Services, Travel Services etc. Such services cannot be said to have been used only for taxable output services when the activity of the assessee includes generation/sale of electricity as well as sale of raw slat. These expenses have been accounted in the common Profit and Loss account. It is the burden of the assessee to establish with documents that they have not used common input services for trading - the assessee has not been able to establish that common input services have not been used for trading activity also. The issue on merit is found against the assessee and in favour of the Revenue. Time limitation - HELD THAT:- The definition of exempted services was amended with effect from 01.04.2011 so as to include ‘trading’ as exempted services. Prior to this date, there was much confusion as to whether credit can be availed in respect of trading. In the present case, the show cause notice for the period April-2007 to March 2012 has been issued on 18.10.2012, which is after the amendment dated 01.04.2011 bringing the activity of trading within the exempted services. As per the show cause notice itself it is seen that the demand has been raised after perusal of ST-3 returns, Cenvat account, balance sheet, profit and loss account of the assessee - In Para 7 of the show cause notice it is stated that as per the records of the assessee, the department has arrived at the excess utilization of credit for the period 2007-08. So also the demand on availment of common input services has been raised on the basis of account of the assessee. All these lead to the probable conclusion that the assessee has disclosed all the transactions in their accounts and has not willfully suppressed any facts with intent to evade payment of service tax/duty. There is no positive act of suppression established by the department against the assessee so as to invoke the extended period - the department has failed to establish the allegation of suppression of facts with intent to evade payment of duty against the assessee so as to invoke the extended period. The show cause notice issued beyond the normal period cannot sustain and requires to be set aside. The issue on limitation is answered in favour of assessee and against the department - The Tribunal in the case of M/s Musaddilal Projects LTD. [2017 (4) TMI 951 - CESTAT HYDERABAD] observed that when the assessee has filed returns regularly disclosing details of credit, the demand cannot be raised invoking the extended period alleging suppression of fact. The impugned order confirming the demand, interest and penalties on second issue for Rs. 72,18,1957/- is modified as above by limiting the demand and interest to the normal period. The appeal filed by the assessee is partly allowed. Issues Involved:1. Appeal by the department regarding the dropping of demand of Rs. 59,32,265/- for the period 2007-08.2. Confirmation of demand of Rs. 72,18,957/- for the period April 2007 to March 2012.3. Invocation of extended period for issuing the show cause notice.Summary of Judgment:Issue 1: Appeal by the Department on Dropping of Demand of Rs. 59,32,265/-The first issue concerns the department's appeal against the Original Authority's decision to drop the demand of Rs. 59,32,265/- for the period 2007-08, alleging excess utilization of Cenvat credit beyond the permissible 20% limit under Rule 6(3)(c) of the Cenvat Credit Rules, 2004. The Tribunal referenced prior cases (M/s Duraflex Services and Construction Technologies Ltd. and M/s Tinna Oils and Chemicals Ltd.) where it was held that assessees were not barred from taking credit but only from utilizing it beyond 20%. The remaining 80% could be utilized in subsequent financial years. Given the significant time lapse, the Tribunal found the department's appeal to be purposeless and upheld the Original Authority's decision to drop the demand. Consequently, the department's appeal was dismissed.Issue 2: Confirmation of Demand of Rs. 72,18,957/-The second issue involves the confirmation of a demand of Rs. 72,18,957/- for the period April 2007 to March 2012. The department alleged that the assessee used common input services for both taxable services and exempted services (generation/sale of electricity and trading of raw salt). The Tribunal held that the burden of proof was on the assessee to demonstrate that common input services were not used for exempted activities. The assessee's argument that input services were used exclusively in Gandhidham and not for activities in Tamil Nadu was found to be unconvincing. Thus, the issue on merit was decided against the assessee and in favor of the Revenue.Issue 3: Invocation of Extended PeriodOn the ground of limitation, the Tribunal considered whether the extended period for issuing the show cause notice was justified. The Tribunal noted that the definition of exempted services was amended to include trading from 01.04.2011, and the show cause notice was issued on 18.10.2012. The Tribunal found that the assessee had disclosed all transactions in their accounts and financial statements, and there was no specific allegation of suppression of facts with intent to evade payment of duty. Citing precedents (M/s Musaddilal Projects LTD., M/s Dynamic Industries Ltd., and M/s ZYG Pharma Pvt. Ltd.), the Tribunal held that the extended period could not be invoked. The demand for the extended period was set aside, but the adjudicating authority was directed to verify and quantify the demand within the normal period. Interest for the normal period was sustained, and penalties were entirely set aside.Conclusion:The impugned order was modified to limit the demand and interest to the normal period. The appeal by the assessee was partly allowed, and the appeal by the department was dismissed. The judgment was pronounced in the open court on 19.02.2024.