M/S.Narmada Vehicles Pvt. Ltd vs Cce & St, Bhopal

[Arising out of Order-in-Appeal No.BPL-EXCUS-000-APP-260-13-14 dated 24.02.2014 passed by the Commissioner C & CE (Appeals), Bhopal]

For approval and signature:

HONBLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether Their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

M/s.Narmada Vehicles Pvt. Ltd. Appellant

Vs.

CCE & ST, Bhopal  Respondent

Present for the Appellant : Shri Z.U. Alvi, Advocate

Present for the Respondent: Shri M.S. Negi, D.R.

Coram: HONBLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)

Date of Hearing: 01.05.2015

Date of Decision: 31.08.2015

FINAL ORDER NO. 52809/2015

PER: S.K. MOHANTY

Brief facts of the case are as under:-

1.1 The appellant is engaged in the business of trading and servicing of four wheeler motor cars as an authorized dealer of Hundai Motors Limited. As a service provider, the appellant is registered with the service tax Department under the category of Authorized Service Station Service and Business Auxiliary Service. The appellant avails Cenvat credit of service tax paid on various taxable services viz. Telephone, Advertising, Insurance, Banking & other Financial services, Maintenance & Repair, Courier, Security service etc. for utilization towards payment of service tax on the aforementioned output services.

1.2 During the disputed period, taking of Cenvat credit by the appellant on the abovementioned input services was disputed by the Central Excise department on the ground that said services have been commonly used for providing the taxable output service as well as for trading activity, an exempted service. Show cause proceedings initiated for reversal of Cenvat credit attributable to the trading activity, culminated in the adjudication order dated 26.11.2012, wherein cenvat demand of Rs.2,44,641/- along with interest was confirmed. Besides this, equal amount of penalty under Section 78 and also penalty under Section 77 of the Finance Act, 1994 have also been imposed in the said adjudication order. For confirmation of the Cenvat demand, the original authority had applied the formula prescribed under Rule 6 (3A) of the Cenvat Credit Rules, 2004. Feeling aggrieved with the said adjudication order, the appellant had preferred appeal before the Commissioner (Appeals). The appeal of the appellant was disposed of vide the impugned order dated 24.02.2014, wherein the Commissioner (Appeals) did not interfere with the findings recorded in the adjudication order and dismissed the appeal. Hence, this present appeal before this Tribunal.

2. Shri Z.U. Alvi, the ld. Advocate appearing for the appellant submitted that during the relevant period (i.e. prior to 01.04.2011), the term trading did not find a place in the definition of exempted service as defined in Rule 2(e) of the Cenvat Credit Rules, 2004, and thus, the trading activity undertaken by the appellant for selling of cars was outside the scope of such definition; and therefore, embargo created in Rule 6 of the said rules will have no application for maintenance of separate accounts and for reversal of cenvat credit.

3. Per contra, Shri M.S. Negi, the ld. DR appearing for the respondent submitted that as the definition of exempted service remains the same (before and after its amendment) and only clarification by way of explanation has been added thereto, it implies that even prior to 01.03.2011, such definition included trading activity also. He further submitted that cenvat credit availed for the input services which go into trading activity of selling of cars is reversible under Rule 6 of the Cenvat Credit Rules, 2004. To substantiate his above stand, the ld. D.R. has relied on the decisions of this Tribunal in the case of Metro Shoes Pvt. Ltd. vs. CCE, Mumbai-I reported in 2008 (10) STR 382 (Tri. Mum.), Orion Appliances Ltd. reported in 2010 (19) STR 205 (Tri. Ahmd.), Loreal India Private Ltd. vs. CCE, Pune-I reported in 2012 (281) ELT 113 (Tri.) and Mercedez Benz India Pvt. Ltd., reported in 2014 (36) STR 704 (Tri. Mum.).

4. Heard the ld. Counsel for both sides and perused the records.

5. Under the Cenvat statute, the service provider of output services is entitled to take Cenvat credit of service tax paid on the input services. Rule 6 of the Cenvat Credit Rules, 2004 mandates that where an output service provider provides both taxable as well as exempted services, then he shall maintain separate accounts for the receipt and use of input services for the provision of the output service chargeable to service tax as well for use in the exempted services. The said statutory provision also mandates that based on the accounts maintained, the output service provider shall be permitted to take Cenvat credit only on the input services used for the provision of the taxable output services. In other words, no Cenvat credit is available to the output service provider with regard to the input service used for providing the exempted services.

6. So far as cenvat credit on the disputed services used for the taxable service i.e. business auxiliary services and authorized service station service, the appellant is eligible to take cenvat credit of service tax paid on the disputed services since the input service definition contained in Rule 2 (l) of the Cenvat Credit Rules read with Rule 3 permits the service provider to do so. However, I find that the disputed input services have not been entirely used by the appellant for providing the taxable output services. Rather, some portion of the input services has been used for trading activity of selling cars. In my view, trading activity cannot be termed as a service. Accordingly, cenvat credit on input services attributable to trading activity will not be available to the appellant. In such eventuality, the only recourse left to the appellant is to segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availment of credit, which in the present case, admittedly has not been done by the appellant.

7. With regard to the findings of the authorities below that the appellant should discharge the cenvat benefit availed on the trading activity by applying the formula prescribed in Rule 6 (3A) of the Cenvat Credit Rules, 2004, I am of the view that the said rule has the application for the service provider, who provides both taxable as well as exempted services. Since trading activity was neither a taxable service nor an exempted service during the relevant period, the provisions of the said rule will have no application and the appellant is not required to pay/ reverse the Cenvat credit as per the formula prescribed therein. However, since the appellant is not permitted to take cenvat credit of service tax paid on the disputed services used for the trading activities, the credit so taken is liable to be reversed. In this contest, I rely on the decision of this Tribunal in the case of Orion Appliances (supra), wherein it has been held that the amount attributable to the input service used for the trading activity should be reversed. The relevant paragraph in the said decision is extracted herein below:-

8.?Then the question arises as to whether the appellant would be eligible for the full amount of service tax credit taken by them on input services can be used for payment of service on output service provided the input services have been used for providing the output services. No doubt there 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 other activity which is liable to service tax. The only obvious solution which would be legally correct appears to be to ensure that once in a quarter or once in a six months, the quantum of input service tax credit attributed to trading activities according to standard accounting principles is deducted and the balance only availed for the purpose of payment of service tax of output service. This proposition is not against the law in view of the fact that there are several decisions of various High Courts and also of the Tribunal wherein a view has been taken that subsequent reversal of credit amounts to non-availment of credit.

8. In view of above, for ascertaining the amount of service tax taken as cenvat credit on the trading activity, I feel it appropriate to remand the matter to the Original Authority, before whom the appellant shall present the details relating to the service tax paid on the input services, which are attributable to the trading activity and based on such submission of documents, the original authority shall quantify the service tax liability, which shall be reversed forthwith by the appellant.

9. In view of the fact that the appellant was not in a position to maintain separate records with regard use of input services for the taxable services and for trading activity (which was not an exempted service at the material time), I am of the view that there is no contravention of the Cenvat rules, and as such, imposition of penalty under Section 77 of the Finance Act, 1994 is not justified. Further, in absence of any specific findings by the authorities below regarding the involvement of the appellant in activities concerning fraud, collusion, willful mis-statement or suppression of fact etc., with intent to evade Government revenue, I am of the considered view that penalty imposed under Section 78 of the Act has no leg to stand for legal scrutiny. Therefore, penalty imposed in the adjudication order and confirmed in the impugned order under Section 77 and 78 of the Finance Act, 1994 are set aside.

10. In the above terms, the impugned order is set aside and the matter is remanded to the Original Authority for quantification of the service tax liability attributable to the trading activity in the light of the decision of this Tribunal in the case of Orion Appliances (supra). Needless to say, that the appellant shall be given the opportunity of personal hearing before passing any order in this regard by the Original Authority. The appeal is disposed of in above terms.

(Pronounced in the open Court on ____________)

(S.K. MOHANTY)

MEMBER (JUDICIAL)

Anita

??

??

??

??

8 ST/53780/2014 Narmada