ST - Amendment to rule 2(e) only stated obvious, that there was no liability to pay service tax on trading activity -Rule 6(3)(c) would get triggered: HC
By TIOL News Service
CHENNAI, JULY 03, 2017: IN the matter of the appeal filed by the CST, Chennai, the Tribunal,while partly allowing the same, 2015-TIOL-815-CESTAT-MAD , had held thus -
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Service Tax - CENVAT credit - Respondents were registered as commission agents and also engaged in trading of M.S. Scrap, M.S. Angles and CTD Bars - They availed credit on certain allegedly ineligible input services as well as utilised excess credit on common input services used for both trading as well as taxable service - respondents paid the entire amount along with interest and subsequently filed refund claim; rejected in adjudication, allowed by Commissioner (Appeals), and agitated by Revenue herein.
Held: In terms of the Cadila Healthcare ruling, Testing and Analysis, C&F services, repair and maintenance services etc. eligible for credit; no infirmity in the impugned order - respondents holding centralised registration and not maintained separate accounts of input services for the trading activity as well as for the taxable service - entire credit on trading activity is not eligible and only proportionate credit with reference to turnover is eligible in terms of the Mercedes Benz ruling. [Para 9, 10]
Respondents are not eligible for the entire credit availed on the common input services - they paid the excess amount and are neither eligible to take re-credit in cenvat account nor eligible for refund - adjudication order rejecting the refund of Rs.6,78,459/- and the interest amount is upheld - revenue appeal is partly allowed; the impugned order to the extent of allowing excess credit on common input services is set aside and original adjudication order is restored.
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Aggrieved, the assessee is before the High Court.
The following questions of law were framed for consideration -
a) Whether in the facts and circumstances of the case, Rule 6(3)(c) of Cenvat Credit Rules, 2002, attracted, in cases, where the service tax on input services are not used in respect of trading activity but used only for taxable services?
b) Whether in the facts and circumstances of the case, trading activity can be categorized as an exempted service for the purpose of invoking Rule 6 of Cenvat Credit Rules, 2002 prior to 1-4-2011.
c) Whether in the facts and circumstances of the case, when trading was not a service or exempted service at the relevant time, requiring the appellant for reversal of any part of the credit on input services is legal?
The appellant submitted that the period involved was 2006-2007 and 2007-2008; that the view of the Tribunal cannot be sustained for the reason that the CCR, 2004 underwent amendment with effect from 01.04.2011, whereby, it was indicated that trading activity would fall in the category of "exempted" services. Inasmuch as by logical corollary, rule 6(3)(c) of the 2004 Rules could apply to trading activity only after 01.04.2011, the appellant emphasized.
The AR pleaded that no interference was called for since trading activity, during the impugned period was also considered an exempted activity and the Explanation inserted only sought to clarify that exempted services included trading activity and which was nothing more than reiterating the obvious.
The High Court inter alia observed -
++ Clearly, during the period in issue, i.e., 2006-2007 and 2007-2008, trading activity, which was one of the businesses, carried out by the appellant was not amenable to service tax. The amendment to rule 2(e) only stated the obvious that there was no liability to pay service tax on trading activity…
++ The argument (of appellant) that, since, the formula of apportionment provided in rule 6(3)(c) is applicable to exempted service, the same can only apply post 01.04.2011, as a clarification was made only on that day onwards…cannot be accepted.
++ If, the appellant has accepted that he was not paying service tax on an activity, then the credit of services vis-à-vis input services could only be taken on a pro-rata basis, as per the formula stipulated in Rule 6(3)(c), as it then obtained at the relevant point in time.
++ Clearly, both before and after amendment, "exempted services" meant those taxable services, which were exempt from whole of service tax and, included those services on which service tax was not leviable, under Section 66 of the Finance Act. The inclusion in Explanation to Rule 2(e) "trading" was, without doubt, only clarificatory.
++ The appellant had not being paying service tax on trading activity during the relevant period, therefore, given the rule position, what would govern the matter would be the determination of the issue as to whether or not, a particular service is amenable to service tax under section 66 of the Finance Act.
++ Since, the trading activity was not amenable service tax at the relevant period, surely, the apportionment as provided in Rule 6(3)(c) would get triggered.
++ Having regard to the rule position and given the admitted fact that no separate accounts were maintained by the appellant, with regard to the taxable and non-taxable services, clause (c) of sub rule 3 of rules 6 of 2004 Rules would apply.
Concluding that no interference is called for with the order of the Tribunal, the questions of law were answered in favour of the Revenue and against the Assessee.
The appeal was dismissed.
(See 2017-TIOL-1235-HC-MAD-ST)
