TaxTMI 
TaxTMI 
2018 (7) TMI 1679
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....ee that the extended period of limitation would not apply and in confirming the demand for tax, interest and penalty? 2. The assessee is engaged in sales and services of Honda cars as an exclusive authorized dealer. It is registered for payment of Service Tax under the categories of "Authorized Service Station" and "Business Auxiliary Service" under the Finance Act, 1994. It availed Cenvat credit of duty paid on various inputs and tax paid on better services in terms of Cenvat Credit Rules, 2004 (hereafter "the Rules"). Alleging that the assessee had trading activities which was not liable to service tax and that credit availed on input services attributable to trading activities was sought to be denied on proportionate basis. Proceedings were initiated which resulted in the impugned order. 3. The adjudicating authority held as below: "26. The rules clearly provides that the exempted services includes services on which no service tax is leviable under Section 66 of the Finance Act, 1944. Trading is a service liable to VAT/sales tax by States and outside the purview of Service Tax. Thus, no service tax is leviable to trading under Section 66 of the Finance Act. This positio....
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....der Rule 6(3). The assessee argued that the demands were also time barred. 6. The CESTAT, by the impugned order, held as follows: "5. We have heard both the sides and perused appeal records. The admitted facts are that the appellants availed Cenvat credit on input services and they had considerable turnover and income in trading activities. It is also admitted that the services on which credit have been availed are partly relatable to trading activities also. We note that the appellants contested the reversal of credit, to a proportionate extent, on the ground that trading is not an exempted service prior to the insertion of explanation and as such the provisions of Rule 6(3) will not apply. One main aspect is missed by the appellant in such argument. The case of the appellant is that trading cannot be considered as exempted service. It is clear that trading is not a taxable service also. In other words, trading is an activity which is not covered under the scope of Cenvat Credit Rules, 2004. The appellants should not have availed any credit on input services when such services are attributable to an activity which is not at all taxable and hence not covered by the scope of C....
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..... The Rule stated such amendment unless otherwise provided came into force w.e.f. 01.04.2011, thus having no retrospective effect. Reliance was placed on the Supreme Court's decision in the case of AU India Federation of Tax Practitioners v Union of India (2007) 7 SCC 527, wherein, it was held that: " ...... The word "goods" has to be understood in contradistinction to the word "service". Therefore, it is submitted that "trading" is goods at first place and is not service thus it cannot be put in the bracket of exempted services that too by way a Rule. Thirdly, first time a new concept was introduced in Cenvat Credit Rules w.e.f., 01.04.2011, for those assessee involved in trading activity along with taxable service, thus it cannot be given effect retrospectively [Ref: UOI v Martin Lottery Agencies Ltd., (2009) 12 SCC 209]." 8. Learned Counsel relied on the salient principle that there exists a presumption against retrospective operation particularly when it would prejudicially affect vested rights of the taxpayers; he relied on Commissioner of Central Excise, Coimbatore v Elgi Equipments Ltd. (2001) 9 SCC 601]. Mr. Mittal pointed to a CESTAT Bench decision in Mercedes Benz I....
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.... entail the punishment of payment of interest with retrospective effect". 12. Mr. Sanjeev Narula, counsel for the Revenue, relied on Metro Shoes Pvt. Ltd v. Commissioner of Central Excise [2008] 14 STT 280 wherein it was held, prior to the amendment of 2011, that where the activity is not subject to service tax levy, such as trading in goods (which is subject to some other levy), composite credit in respect of that activity and the other activity covered by service tax, cannot be granted. It was held, in that decision, that: "6. The duty confirmed on the service directly and wholly attributable to the goods manufactured by the appellant and the demand pertaining to the credit of the service tax on the overhead expenses for running the retail outlets are eligible for credit. But as regards the service tax credit on amount of service tax taken by the appellant for the services which are directly and wholly attributable to the trading activities would not be eligible as credit, as the definition of the input services indicates that the credit is eligible only in "respect of manufacture" of the final product and clearance of the final product form the place of removal. The questi....
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....nput credits can be used for payment of service on output service provided such services are used to provide output services. Undoubtedly, there cannot be an exact correlation between one kind of input and corresponding. That is the reason the Rules cover situations where assessees provide both exempted and taxable services. Wherever someone undertakes activities that cannot be called a service or which is not "manufacture", that activity goes out of the purview of both Central Excise Act as well as Finance Act, 1994. In such cases, an assessee would be ineligible for claiming input-service tax credit on an output which is neither a service nor excisable goods. 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 assessee to segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availing credit. This cannot be done in advance as it may not be possible to foretell the quantum of trading activity as compared with t....