TaxTMI 
TaxTMI 
2019 (8) TMI 429
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....ufacturer of air conditioners and refrigeration products. They also undertake works contract service, erection commissioning and installation service, maintenance and repair service, business auxiliary services and goods transport agency services and have been registered with the service tax department. They availed CENVAT credit on various inputs, input services and capital goods. Some of these services are also used by them for trading activity. Apart from manufacture and the aforesaid services, the appellant also sells air conditioners and this trading activity was considered by the department as an exempted service. Since the appellant had availed CENVAT credit on input services which went into trading activity, the department raised de....
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....ervice provider is neither able to follow Rule 6(1) or Rule 6(2) then under Rule 6(3) they had an option which states that "notwithstanding anything contained in sub-rule (1) and (2), a manufacturer or the provider of output service opting not to maintain separate accounts shall follow either of the following conditions as applicable to him namely: (a).... (b).... (c) The provider of output service shall utilise credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on taxable output services. Subsequently, by Notification No. 13/2016 dated 1st March 2016 explanation 3 has been inserted in Rule 6(1) as follows:- "For the purposes of this rule, exempted services as de....
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....s not paying service tax on trading activity during the relevant period in that case, they were not entitled to credit of input services and they had to follow the formula prescribed under Rule 6(3)(c). On the same issue in the case of Lally Automobiles Pvt Ltd Vs CST Delhi, the principal bench of the Tribunal, as reported in 2018 (10)GSTL 310 (Tri-Del)], has held that trading being not a taxable service is not covered under the scope of CENVAT Credit Rules 2004 and therefore credit needs to be reversed as per Rule 6(3). The assessee's appeal against this order has been rejected by the Hon'ble High Court of Delhi as reported in 2018(17)GSTL 422. Further, the civil appeal filed by the assessee in that case was dismissed by the Hon'ble Apex C....
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....manded. 6. Assessee's third line of argument was that in terms of Rule 6 (5) of CENVAT Credit Rules 2004 not withstanding anything contained in sub-rules 1, 2 & 3, credit of the whole of service tax paid on taxable services as specified in sub-clauses (g), (p), (q), (r), (v) (wza), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause 105 of Section 65 shall be allowed unless such service is used exclusively in or in relation to manufacturing of exempted goods or providing exempted services, Learned counsel would submit that the credit on banking and financial services, insurance/auxiliary services and security agency services availed by them are covered by Rule 6(5) and therefore they are entitled to the full cr....
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....erefore the appellant had a bonafide belief that they are entitled to the benefit of CENVAT credit even if it is decided against them in the current proceedings therefore the penalty imposed upon them under Sections 76 & 78 may be set aside. We find force in the argument of the learned counsel that they had a reasonable cause for their failure in over-using CENVAT credit in violation of Rule 6(3) and thereby not discharging full amount of service tax. 9. In view of the above these appeals are disposed of as under: 1. Appellant is covered by Rule 6(3)(c) of CENVAT Credit rules 2004 and therefore is not entitled to utilise CENVAT in excess of 20% of the service tax payable on the taxable output services. The demand on this count s....