2024 (7) TMI 690 - AT - Service Tax

Stock brokerage firm entitled to CENVAT Credit on input services despite proprietary trading activities

CESTAT Ahmedabad held that appellant providing stock brokerage and financial services was entitled to CENVAT Credit on input services despite also ... CENVAT Credit - input service which is attributed to output service that is stock broker services and other banking and financial services - case of the department is that since the appellant, apart from providing service to their client also carrying out the activity of trading for themselves appellant did not entitle for CENVAT Credit - time limitation. CENVAT Credit - HELD THAT:- On the plain reading of the Rule 14, it is clear that the CENVAT Credit can be recovered under Rule 14 of CENVAT Credit Rules only in case where such CENVAT Credit was availed wrongly. In the present case undisputedly the appellant is engaged in providing the output service that is stock brokerage service and other financial service. Therefore, the appellant’s output service is taxable service which is provided on payment of Service Tax. As regards the activity of the appellant that is stock trading for their own the same is not output service as this activity is not carried out for any other person - In the present case admittedly the provisions of Rule 6(3) was neither invoked in the show cause notice nor invoked for the recovery of the CENVAT Credit under Rule 6 (3) of CENVAT Credit Rules therefore since the availment of credit is in is in order. In the peculiar facts of the present case, there is no machinery provision for recovery of CENVAT Credit, hence the demand of CENVAT Credit is not tenable. Time limitation - HELD THAT:- The fact which is not under dispute reveals the act of the appellant and the appellant had declared the details of credit taken by them on various input services during the period in dispute in compliance of the statutory requirement of filing monthly return - It is also observed that on merit the eligibility of CENVAT Credit even when the appellant provide the taxable output service or activity which is for themselves under which no Service Tax was paid is highly debatable, particularly when the Department has not invoked Rule 6(3) for recovery of CENVAT Credit, no suppression of fact can be attributed towards the appellant. Therefore, the demand is also not sustainable on the ground of time bar - the recovery of CENVAT Credit in the present case is not tenable. The impugned order is set aside - Appeal allowed. Issues Involved:1. Eligibility of CENVAT Credit on input services for stock broker services and other banking and financial services.2. Allegations of suppression of facts and invocation of the extended period of limitation.3. Applicability of Rule 6 of the CENVAT Credit Rules, 2004 regarding exempted services.4. Recovery mechanism under Rule 14 of the CENVAT Credit Rules, 2004.5. Time-barred nature of the demand.Detailed Analysis:1. Eligibility of CENVAT Credit on Input Services:The Appellant, engaged in stock broker services and other financial services, availed CENVAT Credit on input services provided by NSE, considering them as 'Input Services' for their business. The Department contested that services related to the Appellant's proprietary (PRO) account, where no service portion was involved, should not qualify for CENVAT Credit. The Tribunal found that the services received from NSE were indeed input services for the Appellant's business. The definition of 'input service' under Rule 2(1) of the CENVAT Credit Rules, 2004, includes services used in relation to business, thus supporting the Appellant's claim.2. Allegations of Suppression of Facts:The Department alleged suppression of facts by the Appellant, invoking the extended period of limitation under Section 73(4) of the Finance Act, 1994. The Appellant argued that there was no suppression or wilful misstatement as they had filed all returns on time. The Tribunal agreed, referencing case law that mere self-assessment does not imply intention to evade tax. The Tribunal concluded that the Appellant's actions did not constitute suppression of facts, thereby invalidating the extended period of limitation.3. Applicability of Rule 6 of the CENVAT Credit Rules, 2004:The Department argued that the services related to the Appellant's PRO account did not qualify as 'input services' under Rule 6, which restricts CENVAT Credit on inputs used for exempted services. The Tribunal noted that trading was not considered an exempt service before the amendment on 01.04.2011. Therefore, for the period in question (2008-09 to 2011-12), the Appellant was entitled to CENVAT Credit on services used in connection with its business, including trading activities.4. Recovery Mechanism under Rule 14:The Tribunal highlighted that Rule 14 allows recovery of CENVAT Credit only if it was wrongly availed. Since the Appellant's output services were taxable, and the Department did not invoke Rule 6(3) for recovery, the Tribunal found no basis for the demand. The Tribunal emphasized that the Appellant's credit availing was in order and the absence of a recovery mechanism under Rule 6(3) rendered the demand untenable.5. Time-Barred Nature of the Demand:The demand covered the period from 2008-09 to 2011-12, but the Show Cause Notice was issued on 25.10.2013, beyond the normal period of limitation. The Tribunal noted that the Appellant had disclosed all relevant details in their returns and there was no suppression of facts. Consequently, the demand was also unsustainable on the grounds of being time-barred.Conclusion:The Tribunal set aside the impugned order, allowing the appeal with consequential relief. The Tribunal concluded that the Appellant was entitled to CENVAT Credit on input services, there was no suppression of facts, and the demand was time-barred. The recovery of CENVAT Credit was found to be untenable both on merits and due to procedural lapses by the Department.