TaxTMI 
TaxTMI 
2014 (7) TMI 76
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....e, assessee is a trader in personal computers, photocopiers, telecom products and mobile phones etc. and had provided taxable services like Maintenance and Repair; Commissioning and Installation; Leased Circuit; Online Information and Data Processing and Business Auxiliary Services. Assessee obtained centralized registration for the taxable services and availed credit on Service Tax paid on input services utilized for its trading activities; assessee utilized credit to an extent not exceeding 35% upto 09.09.2004 and to an extent of 20% thereafter, of the Service tax payable on its taxable output services, purportedly in terms of Rule 3 of the Service Tax Credit Rules, 2002 and Rule 6 of the Cenvat Credit Rules, 2004 (as applicable during the relevant periods), treating trading as an exempted service. The show cause notice further alleged that as trading of goods is not a service, this cannot be considered as an exempted service and provisions of the Act and Rules thereunder do not apply to trading activities. The assessee reversed Rs. 32,07,556.38 on 16.11.2005 and Rs.88,33,364/- on 31.03.2006 (representing the cenvat credit availed on input services and utilised for remitting par....
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....les, 2004, with an intent to evade payment of Service tax and therefore the extended period is invokable and interest and penalty also leviable. Order dated 21.11.2007 was passed in respect of cenvat credit taken during July 2003 to March, 2006, pursuant to the show cause notice dated 11.10.2006. 3. The Adjudication order dated 15.11.2007 covered the period July 2003 to September 2005, pursuant to proceedings initiated by show cause notice dated 11.10.2006. Assessee which traded in computers, photocopiers etc. also provided taxable services like Maintenance and Repair, Commissioning and Installation, Transport of goods by road, Consulting Engineer and Business Auxiliary Service. Revenue alleged that assessee irregularly utilized cenvat credit on input services like Courier and Business Auxiliary Services, (commission paid for sale) etc. for discharging its service tax liability incurred on taxable services provided, irregularly. Assessee utilized cenvat credit to the extent not exceeding 35% upto 09.09.2004 and not exceeding 20% thereafter, of the service tax payable, treating trading as an exempted service. The assessee reversed the availed cenvat credit, Rs.22,70,191/-, on 22.....
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....d ordered recovery of interest of Rs. 12,96,132/- and penalty of Rs. 90,00,000/-. The same assessee is the appellant in both the appeals. Appeals are preferred against adjudication orders dated 21.11.2007 and 15.11.2007 respectively, passed by the Commissioner, Customs and Central Excise, Noida. 4. The gross period covered by the adjudication orders impugned in the appeals is July, 2003 to March, 2006, during which period specified amounts of cenvat credit was availed and used by the assessee for discharging part of its service tax liability in respect of taxable services provided by it. 5. Provisions of the Service Tax Credit Rules, 2002, which came into force w.e.f. 16.08.2002 govern the entitlement to availment and utilization of cenvat credit upto 10.09.2004, on which date the Cenvat Credit Rules, 2004 came into force. The 2004 Rules govern the field since 10.09.2004. 6. Under the Credit Rules, 2002 input service is defined in Rule 2(c) as any taxable service received and consumed by a service provider in relation to rendering of output service. Rule 3(1) provided that an output service provider shall be allowed to take credit (service tax credit) of the service tax paid on....
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....service which is used in the manufacture of exempted goods or exempted services except in circumstances mentioned in sub-rule (2). Sub-rule (2) enjoins maintenance of separate accounts for receipt, consumption and inventory of input or input services meant for use in the manufacture of dutiable final products or in providing output service; and the quantity of input spent for use in the manufacture of exempted goods or services and authorizes taking of cenvat credit only on that quantity of input or input services which are intended for use in the manufacture of dutiable goods or in providing taxable output services. Sub-rule (3) of Rule 6 carves out specified exclusions to the requirements set out in sub-rule (2). Sub-clause (c) of Rule 6(3) stipulates that the provider of an output service shall utilise credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on a taxable output service. 8. The 2004 Credit Rules were amended w.e.f. 01.04.2011, by Notification No. 3/2011-CE (NT). To the extent relevant for this lis, by an explanation added to Rule 2 of the 2004 Rules, it was clarified by this amendment that 'exempted services' include 'trading....
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....nd that the assessee had deliberately failed to disclose availment of cenvat credit utilized for trading which clearly does not amount to input service used for providing taxable or exempted services; and since trading would not in any event be considered an exempted service. Ld. Counsel for the appellant contends that this is a bonafide interpretational error on the part of the assessee and therefore invocation of the extended period is not justifiable. This contention of the assessee does not merit acceptance. Till the fiction was introduced that trading is an exempted service, by the 'Explanation' introduced w.e.f. 01.04.2011 in the Cenvat Credit Rules, 2004, trading which is a sale of goods could not have been considered as a service, a taxable service or an exempted service. The input services (on which cenvat credit was earned by the assessee) were consumed for its trading activities and could not have been availed or taken for discharging service tax on the services provided by the assessee, after the trading activity. There is no scope for any interpretational misconception on this aspect. Invocation of the extended period is therefore without error. The Tribunal in Orion A....
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....alf of the appellant is that interest is due and payable only on the amount of cenvat credit utilised for discharging the assessee's service tax liability on the taxable services provided by it and not on the amount of cenvat credit taken in its books of account but reversed later. Reliance for this proposition is placed on the judgment of the Karnataka High Court in CCE & ST, LTU, Bangalore vs. Bill Forge Pvt. Ltd. 6. After considering the judgment of the Supreme Court in Union of India vs. Ind-Swift Laboratories Ltd.7, the Karnataka High Court ruled that where credit was taken or utilised and the mistake is brought to assessee's notice; an assessee corrects the mistake and immediately reverses the entry, the assessee cannot be said to have been taken benefit of the wrong entry in the accounts books; and if the assessee had not taken the benefit of cenvat credit it would be not liable to pay interest i.e. when credit taken is reversed before utilisation of the credit; once the entry was reversed it is as if that cenvat credit was not available. The Karnataka High Court pointed out that only that when assesse....