Custom, Excise & Service Tax Tribunal
Tafe Reach Ltd vs Commisioner Of Gst&Amp;Ce(Salem) on 13 November, 2019
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CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 40793 of 2019
(Arising out of Order-in-Appeal No. 130/2019-ST dated 06.03.2019 passed by the
Commissioner of G.S.T. & Central Excise (Appeals), Coimbatore, Circuit Office at
Salem, No. 1, Foulke‟s Compound, Anai Road, Salem - 636 001)
M/s. TAFE Reach Ltd. : Appellant
No. 133/1, 89/2, Perundurai road,
Surampatty Village,
Erode - 638 011
VERSUS
The Commissioner of G.S.T. & Central Excise, : Respondent
Salem Commissionerate,
No. 1, Foulke‟s Compound, Anai Road,
Salem - 636 001
APPEARANCE:
Shri. N. Viswanathan, Advocate for the Appellant
Ms. Sridevi Taritla, Authorized Representative for the Respondent
CORAM:
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL)
FINAL ORDER NO. 41273 / 2019
DATE OF HEARING: 23.10.2019
DATE OF DECISION: 13.11.2019
The appellant is a registered Authorized Service
Station („ASS‟ for short) rendering services relating to
repair and maintenance of TATA brand of motor vehicles.
There is no dispute that the appellant is discharging its
Service Tax on the taxable value of the above services
rendered by them.
2.1 The appellant, in the course of its service, claims to
have sold engine oil, coolants, etc., apart from
replacement of worn-out parts when required. It is the
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case of the appellant that they do not independently sell
any of the above items to any other customer at their
work shop; that the same are exclusively used while
rendering the taxable service. It is also a matter of record
that upon completion of the service undertaken, the
appellant raised a common invoice containing the value of
the service portion and also the value of the
material/consumable portion used in providing their
services; that they paid Service Tax on the value of
services rendered and also paid VAT on the consumables
used/sold, as required under the respective State Act.
2.2 In view of the above facts, the dispute that has led
to the present appeal is - " whether the appellant was
required to reverse the proportionate common input
service tax credit availed by them in respect of Telephone
and Renting of Immovable Property Service as per Rule 6
(3) of the CENVAT Credit Rules, 2004 since the
consumables sold by the appellant while rendering service
was alleged to be a trading activity which is an exempted
service from April 2011? " Show Cause Notice came to be
issued, to which the appellant filed its effective reply
which culminated in the confirmation of demand vide
Order-in-Original No. 05/2018 dated 26.04.2018.
Thereupon, the same was also upheld by the Ld. First
Appellate Authority vide impugned Order-in-Appeal dated
06.03.2019.
3. When the matter was taken up for hearing, Shri. N.
Viswanathan, Ld. Advocate, appeared for the assessee-
appellant and Ms. Sridevi Taritla, Ld. Joint Commissioner
(Departmental Representative) appeared for the
Revenue.
4. Facts are not in dispute.
5.1 Ld. Advocate for the appellant vehemently
contended that the authorities below were not correct in
treating the consumables sold while rendering services
under ASS as trading activity since the authorities failed
to appreciate the crucial differences between a
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conventional trading activity as opposed to the sale of
consumables in the present case.
5.2 He further submitted that the primary and only
activity of the appellant was servicing of cars and that it
is only during the course of rendering such service, if
needed, they would use engine oil, coolants as top-up
and/or worn-out parts were also replaced; that the same
was not provided independently to any buyer/customer.
This, according to the Ld. Advocate, amounted to the
rendering of a bundled service with repair and
maintenance being predominant; that the same is not
complete without the use of consumables. Therefore, the
supply of the above consumables was only incidental to
the provision of service which could not be segregated.
5.3 Ld. Advocate placed reliance on the C.B.E.C.
Circular No. 699/15/2003-CX dated 05.03.2003 in his
support. He also relied on the decision of the Hon‟ble
jurisdictional High Court in the case of Commr. of C.Ex.,
Salem Vs. M/s. Salem Co-operative Sugar Mills Ltd.
reported in 2014 (35) S.T.R. 450 (Mad.).
6.1 Per contra, Ld. A.R. for the Revenue supported the
findings of the lower authorities. She submitted that
trading activity was specifically brought within the ambit
of "exempted service" under Rule 2 (e) of the CENVAT
Credit Rules, 2004 and as such, Rule 6 of the CENVAT
Credit Rules was made applicable whereby the appellant
was required to reverse the proportionate CENVAT Credit
availed on the input services in respect of the exempted
service, i.e., the trading activity.
6.2 She further submitted that the assessee, however,
had followed the above procedure from 01.04.2014
onwards and also reversed the proportionate input service
credit attributable to the exempted service, which would
prove the Revenue‟s case as to the appellant‟s liability
even for the earlier period.
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6.3 Ld. A.R. relied on the decision of the Hon‟ble Delhi
High Court in the case of M/s. Lally Automobiles Pvt.
Ltd. Vs. Commissioner (Adjudication), C.Ex. reported
in 2018 (17) G.S.T.L. 422 (Del.).
7. In reply, Ld. Advocate submitted that the period
involved is from 2012-13 to 2015-16; the Show Cause
Notice issued in 2017 (dated 27.07.2017) is clearly
beyond the normal period, which in the absence of
suppression, fraud, etc., cannot be sustained. He further
submitted that the appellant did not take any credit of the
input duty on such consumables used/sold by them and
therefore, for the above reasons, the allegation as to
treating the appellant‟s service as trading, which is
exempt, requiring the appellant to reverse the common
input service tax credit availed is not correct and proper
and hence, the same is liable to be set aside.
8. I have heard the rival contentions, perused the
documents placed on record and also gone through the
decisions/orders referred to during the course of
arguments.
9.1 The C.B.E.C. Circular No. 699/15/2003-CX (supra),
relied upon by the appellant, has clarified the issue
regarding Service Tax on Authorized Service Station
during the course of providing service, wherein such ASS
replaces engine oil, gear oil, coolants, etc., as per the
request of the customer, in the following manner :
"Subject: Clarification regarding service tax on
authorised service station.
.
.
.
2. During the course of providing service, an authorised service station also replaces engine oil, gear oil and coolants, etc. as per the request of the customer. The price charged by authorised service station for engine oil, gear oil, and coolants is towards sale of these consumables to the customer. Therefore, the sale of consumable during the course of providing service is akin to sale of parts and accessories and therefore value 5 of such consumables is not includible in the value of taxable services, provided value of such consumables is shown separately."
9.2 The law underwent a change with effect from 20.06.2012 with the inclusion of „exempted service‟ under Rule 2 (e) of the CENVAT Credit Rules, 2004, which under its ambit covered trading of goods. The above Circular dated 05.03.2003 is therefore issued much earlier, obviously without having the benefit of the subsequent development.
9.3 The Hon‟ble High Court of Delhi in the case of M/s. Lally Automobiles Pvt. Ltd. (supra) has dealt with a somewhat similar issue. Following are the relevant paragraphs:
"...14. It was submitted that in this case, the assessee was engaged in trading activities in common premises. Those activities were not subjected to service tax, as they involved distribution, sale or vending of goods. The question of any such activity being "exempt" on account of the 2011 amendment Rules, does not arise. The amendment only stated the obvious. However, that did not mean that trading was subject to service tax. If any activity was not subjected to that levy, the question of claiming any credit in respect of it could never arise. The Revenue submitted that in this background, the assessee's claim that the extended period of limitation could not be invoked, is unsustainable.
Analysis and conclusions
15. Rule 6(2) of the Cenvat Credit Rules, is extracted below :
"Where a manufacturer or provider of output service avails of Cenvat credit in respect of any inputs or input services, /***/, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take Cenvat credit only on that quantity of input or input service which is intended for use in 6 the manufacture of dutiable goods or in providing output service on which service tax is payable."
16. Therefore, the issue is whether the assessee could claim the credit on input which were not services. Input credits can be used for payment of service on output service provided such services are used to provide output services. Undoubtedly, there cannot be an exact correlation between one kind of input and corresponding. That is the reason the Rules cover situations where assessees provide both exempted and taxable services. Wherever someone undertakes activities that cannot be called a service or which is not "manufacture", that activity goes out of the purview of both Central Excise Act as well as Finance Act, 1994. In such cases, an assessee would be ineligible for claiming input-service tax credit on an output which is neither a service nor excisable goods. 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 assessee to segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availing credit. This cannot be done in advance as it may not be possible to foretell the quantum of trading activity as compared with taxable activity. The obvious solution would 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.
17. In the present case, the assessee's argument that there is no mechanism to reverse credit, once taken, in the opinion of this Court, cannot be accepted. The assessee was well aware of the exact nature and extent of its service tax liability. It was also aware of the eligible service tax inputs. Therefore, when it did claim successfully and unchallenged input credits in respect of activities that were not subjected to service tax levy, it was aware that the claim was excessive and could not be justified. If, for instance, input credits were claimed in respect of goods or rents, attributable to retail business, those credits were clearly impermissible. In these circumstances, this Court finds no infirmity with the concurrent findings of the lower authority and the CESTAT, which concluded that show cause notice and recoveries were in order."
79.4 I find that the issue on hand is squarely covered by the dictum of the Hon‟ble High Court (supra) and therefore, I do not find any merit in the appellant‟s claim. Accordingly, this ground of the appeal is dismissed.
10.1 With regard to limitation, i.e., invoking the extended period of limitation, I find that the Hon‟ble High Court in the case of M/s. Lally Automobiles Pvt. Ltd. (supra) has also dealt with the same issue, in the subsequent paragraphs, as under :
"18. As regards the method of calculation and invocation of extended period of penalty, the assessee's contentions again, to the Court's mind, are groundless. The assessee concededly did not maintain regular separate accounts in respect of non-service tax leviable activities. Therefore, the adjudicating authority adopted the method of proportionate turnover based attribution to the assessee's liability:
"I find that it was clear in 2008 itself that no Cenvat Credit is available for services used for trading as decided by Hon'ble CESTAT in the Metro shoes case. The noticee has availed the Cenvat Credit used for exempted services namely trading without reversing the proportionate credit. They have never informed the department about taking the wrong credit. This would have been undetected if the facts were not noticed during audit. M/s. Lally Automobiles Private Ltd. have failed to inform the department that they are not maintaining the separate records for input services used for taxable and exempted services. It is already noted that the law requires an assessee to maintain separate records of Cenvat credit received on taxable or non-taxable services. In case the separate records are not maintained, the Cenvat credit is to be reversed as per Rule 6(3) of the Cenvat Credit Rules, 2004;. I find that : M/s. Lally Automobiles Private Ltd. have not reversed the same by suppression of material facts. The excess credit availed utilized by them is liable to be recovered in terms of Rule 14 of Cenvat Credit Rules, 2004 read with proviso to Section 73(1) of Finance Act, 1994."
19. This Court is of opinion that the lack of any method in the rules in such cases, would only mean that a reasonable and logical principle should be applied, not concededly that what should and could not be claimed as input credit, (but was in fact so claimed) ought to be "left alone" because of the composite nature of the assessee's business. While any assessee has a right to 8 organize its business in the most convenient and efficient manner, it cannot claim that that such organization is so structured that its tax liabilities cannot be clearly discerned. In this case, the adjudicating authority adopted the proportionate percentage to the turnover method approach, which in this Court's opinion, is reasonable.
20. This Court is also of the opinion that the invocation of the extended period of limitation was warranted in the circumstances of the case. Being conscious of its trading activity and that it was not liable to service tax (since it did not include the amounts earned from that business, in its returns) meant that the assessee was aware of what it was doing. It cannot now take shelter under the plea that non-trading activity was expressly exempt from claiming credit, in 2011. That amendment made no difference, given that trading was never taxable under the Finance Act, 1994. In these circumstances, the Revenue was justified in invoking the extended period of limitation in this case.
21. In the light of the above findings, all the questions framed are answered in favour of the Revenue and against the assessee. The appeal is, therefore, dismissed."
10.2 Further, it is a fact borne on record that the appellant itself has chosen to follow the procedure laid down under Rule 6 (3A) on and from 01.04.2014 by reversing the proportionate input service credit attributable to the exempted service of trading, which clearly shows the knowledge of the appellant as to the requirement of law, which was also done prior to the issuance of the Show Cause Notice. In this connection, I find it apt to refer to paragraph 20 of the decision of the Hon‟ble Delhi High Court in the case of M/s. Lally Automobiles Pvt. Ltd. (supra), which is reproduced at the cost of repetition :
"20. This Court is also of the opinion that the invocation of the extended period of limitation was warranted in the circumstances of the case. Being conscious of its trading activity and that it was not liable to service tax (since it did not include the amounts earned from that business, in its returns) meant that the assessee was aware of what it was doing. It cannot now take shelter under the plea that non-trading activity was expressly exempt from claiming credit, in 2011. That amendment made no difference, given that trading was 9 never taxable under the Finance Act, 1994. In these circumstances, the Revenue was justified in invoking the extended period of limitation in this case."
10.3 In the light of the above facts, the decision of the Hon‟ble High Court of Judicature at Madras in the case of M/s. Salem Co-operative Sugar Mills Ltd. (supra) is distinguishable.
11. In view of the above, I do not find any merit in the contentions of the Ld. Advocate for the appellant and accordingly, the appeal is dismissed.
(Order pronounced in the open court on 13.11.2019) Sd/-
(P. DINESHA) MEMBER (JUDICIAL) Sdd