By TIOL News Service

MUMBAI, MAR 16, 2016: THE appellant is registered as provider of various services, besides trading in packaged software. It is alleged that the appellant availed credit on all ‘inputs' and ‘input services' used by them without exception during the period December 2007 to March 2011 even though some portion of these input services were attributable to trading activity which is an ‘exempted service' &which is contrary to the CCR, 2004.

The appellant claimed that they were not required to reverse a proportionate quantum of credit as trading is not equated with ‘exempted goods' or ‘exempted service'. It is further contended that the incorporation of clarification that ‘trading' is an exempt service with effect from 1 st April 2011 vide an Explanation in rule 2(e) of CCR, 2004 clearly indicates that it was not intended for coverage as ‘exempt service' earlier. Decisions in Chetan Traders 2008-TIOL-1694-CESTAT-DEL & Orion Appliances Ltd 2010-TIOL-752-CESTAT-AHM, Indian National Ship owners Ass ociation [2008-TIOL-633-HC-MUM-ST], Mahindra & Mahindra Ltd. 2007-TIOL-534-CESTAT-MUM and Mercedes Benz India Pvt Ltd 2015-TIOL-1550-CESTAT-MUM were relied upon.

The Commissioner (A) modified the order of the AC, CEX by reducing the tax liability to Rs. 2,34,788/- with interest thereon after granting benefit of Rule 6(5) of CCR, 2004 to the extent of Rs.1,10,005/- and setting aside the penalty imposed u/r 15(3) r/w s. 78 of FA, 1994.

The appellant is, therefore, before the CESTAT.

After considering the submissions made by both sides, the Bench observed that the decision of the Tribunal in Mercedes Benz India Pvt. Ltd(supra) was in almost identical circumstances and where an unambiguous conclusion was reached that the Explanation inserted in Rule 2(e) of CCR, 2004 is prospective in nature. The CESTAT added that in the referred case it was also held that since ‘trading' was not service, the portion of tax paid on ‘input services' that was not attributable to ‘output services' could not be allowed to be availed.

It was, therefore, concluded -

"12. In view of the clearly articulated findings in the decision of the Tribunal supra, the credit that may be availed of the tax paid on services used in common for ‘output services' and trading during the relevant period is to be so apportioned and appropriate reversals effected. As the turnover has been the basis for apportionment, there is no reason to interfere with the impugned order."

Holding that the order of Commissioner (A) was proper and equitable the appeal filed by the assessee was rejected.

(See 2016-TIOL-634-CESTAT-MUM)