TaxTMI 
TaxTMI 
2015 (6) TMI 271
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....nd reducing the same to Rs. 6,97,822/- and in reducing the penalty to 50% of the amount of Cenvat Credit demanded. 2. The appellant is engaged in the provision of "Business Auxiliary Services" (BAS) and IT Software Services as well as trading of scrap. They availed Cenvat Credit of service tax paid on common services received for providing output services as well as in trading activities. As the trading activity is not taxable under Central Excise law or Service Tax law, the benefit of wrongly availed Cenvat Credit on input services used in trading activity and amounting to Rs. 21,05,690/- during the period April 2006 to March2011 was denied by the adjudicating authority, with option to pay 25% of duty as penalty if deposited within 30 days of the receipt of adjudication order in terms of Section 78 of the Finance Act read with Rule 15 (3) of the Cenvat Credit rules, The credit was disallowed in proportion of trading turnover (i.e. sales price of traded goods) to the total turnover (i.e. trading plus value of output service). In appeal proceedings, the Commissioner (Appeals) decided that, since with effect from 01/04/2011 the definition of exempted services was amended to includ....
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.... Counsel argues on the ground of time bar stating that prior to 2011 all input service used in connection with the business were entitled to Cenvat Credit. Their activity of trading is a business activity. It was only in 2011 that the definition of exempted service included trading activity Hence, as the department itself was not clear on the treatment of trading activity vis-a-vis Cenvat Credit, invoking the extended time period is not justified. He relies on the Supreme Court judgement in the case of Sai Sathya Sai Inst., High Medl. Sciences vs. UOI - 2003 (158) ELT 675 (SC) to state that it was for Government to impose conditions while considering fulfilment of exemption or otherwise. And in the present case, there was no restriction in using credit for trading. He relied on the Tribunal judgment in the case of Landis + GYR Ltd., vs. CCE, Kolkata - V - 2013 (2900 ELT 447 (Tri-Kolkata) which held that if circumstances or facts are not clearly spelt out, extended time period cannot be invoked. 5. The learned DR reiterates the findings of the Commissioner. He emphasizes that trading is not a service at all. The question of permitting input service credit for providing output act....
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....ing and installation services. It is not correct to say that these services are not required or have not been utilized for trading activity also. He submits that entire credit has been disallowed without taking this aspect into account even though it had been submitted by the appellant that these services had been used for both the activities. On the other hand learned DR would submit that the lower authorities after verifying the records have come to the conclusion that these services have not been utilized for trading activity. Further, he also submits that duty demand has been made as per Rule 3 of Service Tax Credit Rules, 2002. It is his contention that since trading activity is not at all a service, the provisions of Rule 6 of Cenvat Credit Rules and provisions of Service Tax Credit Rules cannot be applied. 4. The issues to be decided in this case are : (i) Whether trading activity can be called a service. (ii) Whether Rule 6 of Cenvat Credit Rules, 2002 and Service Tax Credit Rules, 2002 would be applicable when input services are used in respect of trading activity as well as taxable services. (iii) if Cenvat Credit Rules and Service Tax Credit Rules are not app....
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....re is no one to one correlation required. This is the reason why provisions have been made in Cenvat Credit Rules and Service Tax Credit Rules to cover such situations where an assessee is providing both exempted and taxable services. In cases where an assessee is undertaking activities which cannot be called a service or which cannot be called manufacture, that activity goes out of the purview of both Central Excise Act as well as Finance Act, 1994. Therefore, we have a situation where an assessee would not be eligible to take input Service tax credit on an output which is neither a service nor excisable goods and at the same time there is no provision to cover situations where an assessee is providing a taxable service and is undertaking another activity which is neither a service nor manufacture. In such a situation the only correct legal position appears to be that it is for the appellant to choose and segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availment of credit. Naturally this cannot be done in advance since it may not be possible to forecast what would be the quantum of trading activity and ot....
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.... query by the Bench that since Ld.Sr. advocate is arguing that only the value addition should be taken in respect of the traded goods, then why the same criteria should not be applied in the case of manufactured goods i.e. take the differential amount between the selling price and cost of various raw materials Ld.Sr. advocate stated that in case of manufactured goods so many things go into production process like labour, electricity and many other services and it will not be appropriate to take the value addition. In support of his contention that in case of traded goods only value addition should be taken, Ld.Sr. advocate took us through the judgment of the Court (5 th Chamber) dated 14.7.1998 in case C-172/96 which was passed on a reference under Article 177 of the EC Treaty by the High Court of Justice of England and Wales, Queen's Bench Division. We have gone through the said judgment carefully. In the said case, the issue was how to determine the turnover for purpose of value added tax in case of transactions in different currencies by the First National Bank of Chicago. The Bank used to purchase various currencies at a certain rate in other currencies. Similarly, the Bank....
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....ion is how to determine the same. We find that the major amount pertains to the services in relation to the advertisement, even management, business auxiliary service and business support service. When the appellant is spending certain amounts for sales promotion such as advertisement of the cars and consequent to the said expenditure he has certain turnover of the cars out of which some of the cars manufactured indigenously while other cars are imported and hence traded. In our view, the credit of tax paid on such sales promotion activities should be apportioned with reference to the turnover of the manufactured cars and turnover of the traded cars. For example, if the turnover in particular period is say Rs. 1000 crore out of which turnover of Rs. 700 is pertaining to the indigenous cars and turnover of Rs. 300 crores pertains to the imported and traded cars then if the input credit of 10 crores is available then 7 crore should be considered for the manufactured cars in India and credit of Rs. 3 crore should be considered pertaining to imported and traded cars. If we go by the argument of the Ld.Sr.Advocate then the value of traded cars will have to be taken as Rs. 30 crores and ....
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....) The Commissioner (Appeals) has not correctly interpreted the definition of 'input service'. As per Cenvat Credit Rules, 2004 definition of "input service" means - (i) Used by a provider of taxable service for providing an output service, or (ii) ....... As per the above definition for any service to be qualified as input service, it should be used for providing an output service. In the instant case the service provider is availing credit of service tax paid on the amount incurred for inward transportation of vehicles to be sold from the show room. The input service is related only to the sale of the vehicles. It is not at all related nor required for doing servicing on the vehicles to be received much later to their sale and hence cannot be treated as input service for providing output service under "authorized service station" category. (b) Further the vehicles sold by them would not come to their service station in as such condition for servicing purpose. They receive only used/old condition vehicles at service station for servicing purpose. It cannot also be ruled out that they may be servicing the old/used vehicles at service station sold by other dealers. Th....
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....her authorized dealers. In our view, unless the vehicles are received and sold, there would not be any servicing of the same. Moreover the definition of the input service is broad enough to cover the input service availed by the Respondents and also the output service rendered by them. We do not find any merit in the appeal of the Revenue. The Respondents are rightly entitled for the credit. Hence we reject the Revenue's appeal and uphold the impugned order." I find that the above case is placed on a somewhat different footing. The activities involved are both services namely, GTA service and authorised station service. That is, use of input service credit for paying tax on GTA service. IN the present case the issue is of denial of service tax credit on input services used for trading. The appellant is not an output service provider in respect of trading. I also find that Mercedes Benz is a later judgment and therefore, I am inclined to follow it. 6.2 The Mercedes Benz judgment also held that the formula introduced in Rule 6 in 2011 cannot be applied retrospectively. Following this judgment, I hold that the amount of credit to be disallowed was correctly computed by the a....