Custom, Excise & Service Tax Tribunal
M/S Krishna Auto Sales vs Cce & St, Chsandigarh-I on 10 September, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066.
SINGLE MEMBER
Date of Hearing: 04/09/2015
Date of Pronouncement: 10/09/2015
Appeal No. ST/52320/2015-ST(SM)
(Arising out of Order-in-Appeal No. EXCUS-000-APP-471-14-15 dated 13.03.2015 passed by the Commissioner (Appeals) Customs & Central Excise, Chandigarh-I)
1.
Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2.
Whether it would 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 Department Authorities?
M/s Krishna Auto Sales Appellant
Vs.
CCE & ST, Chsandigarh-I Respondent
Appearance:
Present for the Appellant: Shri Ankit Parti, Advocate Present for the Respondent: Shri Rajeev Gupta, DR Coram: Honble Ms. Sulekha Beevi C.S., Member (Judicial) Final Order No.52830/2015 Per: Sulekha Beevi C.S.
1. The appeal is filed challenging the disallowance of Cenvat Credit on input services alleged to be common services for trading activity and taxable output services.
2. Brief facts are as under:-
2.1 The appellant, M/s Krishna Auto Sales is engaged in the activity of sale of vehicles and are also providing repair/maintenance of vehicles at their authorized service station. Besides they also arrange finance and insurance of vehicles through Banks and Insurance Companies for which they receive commission. A show cause notice dated 31.12.2010 was issued alleging that appellant had wrongly availed Cenvat Credit of service tax paid on mobile phone bills for the period 2005-2006 (Rs.16,558), 2006-2007 (Rs.37,732), 2007-08 (Rs.33,665) and 2008-2009 (Rs.16,086). The appellants had adjusted an amount of Rs.1,14,041/- payable as service tax fully from the Cenvat credit. The department was of the view that as the main activity of the appellant is purchase and sale of vehicles, i.e. trading activity, the credit is not available as the appellant did not maintain separate accounts. The show cause notice finalized in the order which confirmed the demand and imposed equal amount of penalty after invoking the extended period of limitation. In appeal, the same was upheld. Aggrieved the appellant is now before the Tribunal.
3. According to the department, the mobile phones are used by sales representatives for sales promotion of vehicles, i.e., mainly for sale of vehicles. The activities of insurance, financing and repair/maintenance of vehicles are only incidental to the main activity. The main activity of the appellant being trading and the input service (mobile phone) having been used as common input services for both trading and output services of financing, insurance and authorized service station, per Rule 6(2) of the Cenvat Credit Rules, 2004, the appellant ought to have maintained separate accounts and would be eligible for proportionate credit only. That as the appellant has not maintained separate accounts, the credit is wholly inadmissible.
4. Ob behalf of appellant, arguments were advanced both on merits as well as on the issue of limitation. On merits, the case of the appellant is that appellants are providing service of maintenance/repair of motor vehicles as authorized service station in addition to providing assistance for insurance and finance for vehicles. They are also engaged in purchase and sale of vehicles. The appellants were availing credit of service tax paid on mobile phone to discharge their service tax liability for the above output services. It is submitted that sub rule (2) of Rule (6) provides for maintaining separate accounts only when input services are commonly used for both exempted services and dutiable services. Trading has been categorized as exempted service only w.e.f. 1.4.2011. Prior to that, i.e., during the disputed period trading was not an exempted service. Therefore there was no obligation on the part of the appellant to maintain separate accounts. That therefore the appellant is entitled to avail the full credit.
5. Heard both sides. Undeniably the input services (mobile phones) are used as common input for trading activity as well as other output services. As per sub rule (2) of Rule 6 of the CCR, 2004, the assessee is required to maintain separate account only in respect of exempted service and dutiable services. However, the learned counsel for appellant is correct in submitting that trading has been categorized as an exempted service only w.e.f. 1.4.2011. Trading activity not being a service at all, the appellant is not required to maintain separate accounts as per sub rule (2) of Rule 6 prior to 1.4.2011. So the view of department that the appellant is not entitled to credit for want of maintaining separate account is not correct. At the same time, credit cannot be allowed against trading as it is not either a service falling under Finance Act 1994, manufacture under the Central Excise Act, 1944. Therefore that portion of the input service availed for trading is not admissible. The question is how to arrive at that portion of the input service availed for trading, as the appellant has not maintained separate accounts. The CESTAT in Orion Appliances Ltd. Vs. Commissioner of Service Tax, Ahmedabad reported in 2010 (19) S.T.R. 205 (Tri.-Ahmd.) has dealt with a similar situation as under:-
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.
?I am conscious of the fact that the decision or the conclusion reached by me above is not what was proposed in the show cause notice or what was desired by the appellants. But here I find that the procedure adopted by the department is also not correct and at the same time as per law assessee is not eligible for service tax paid on input services attributable to trading activity. Obviously, the only solution that could be thought of what has been discussed above. In view of the above discussion, the matter is remanded to the Original Adjudicating Authority before whom the appellants shall present the details relating to service tax paid on input services attributable to trading activity and other services separately and after verification if felt necessary, the adjudicating authority shall quantify the amount to be reversed or payable by the appellant. It is made clear that if the Original Adjudicating Authority is not satisfied with the report given by the appellants and proposes any revision, such revision shall be made only after giving an opportunity to the appellants.
6. From the above, the view taken by the department that the appellant is not entitled to credit, because the appellant failed to maintain separate accounts is not correct. So also the whole of the credit is not admissible as credit attributable to trading activity is not admissible. On merit I find that appellant is eligible for credit of service tax paid on input services attributable to output services which needs verification and quantification.
7. The next issue to be considered is limitation. The audit was conducted on 27.10.2008 and the SCN is issued on 31.12.2010 raising demand for the period 2005-06 to 2008-09. The learned counsel for the appellants vehemently argued that there was no suppression of facts or willful mis-statement with the intention to evade duty and therefore the extended period is not invokable. It is submitted that appellants believed that there was no irregularity in availing the credit as the fact of availing credit was being communicated to the department as per S.T.-3 returns. The fact that appellants were registered for trading activities also was within the knowledge of department. Further that an audit was conducted earlier in December 2005, but no objection regarding credit on mobile phones was found then. Against this, on behalf of the department it was strongly argued that there is suppression of facts, as the evasion would have gone undetected, if the audit party had not verified the records.
8. To invoke the extended period, there should be suppression or willful misstatement with intention to evade payments of duty. The issue reveals an interpretational issue where in the department is of the view that even while engaging in trading activity, the appellant has to maintain separate accounts in order to avail credit when inputs are used in common. Whereas, the appellant was under the belief that trading not being a service at all there is no requirement to maintain separate accounts. On such score, there is nothing to establish suppression or willful misstatement with intention to evade payment of duty on the part of appellants. I therefore find that extended period is not invokable. The demand is unsustainable being time barred. The issue on limitation is answered in favour of appellants.
9. In the result, the impugned order is set-aside. Appeal is allowed (Pronounced on 10/09/2015) (Sulekha Beevi C.S.) Member (Judicial) K. Gupta 2