Ingersoll-Rand Technologies And Services Private Limited Vs Commissioner (CESTAT Allahabad)
Conclusion: CESTAT held that ‘Explanation’ added to definition of ‘exempted service’ would widen the scope of the provision and will have prospective effect and cannot be applied retrospectively.
Facts: In present facts of the case, the Demands were raised under Rule 6(3)(c) and Rule 6(3)(1) of the Cenvat Credit Rules, 2004. The first demand is for the period from April 2006 to March 2008 and is the amount paid in excess of 20% of service tax payable from the credit account, on account of credit of input services used in manufacture of dutiable goods/taxable services as well as in trading activity (exempted service) while the second demand is for the period from April 2008 to March 2011 @ 8%/6% of the value of traded goods (exempted service) on account of credit of input services used in the manufacture of dutiable goods/taxable services as well as in trading activity (exempted service).
According to the Revenue, for the relevant period from April 2006 to March 2011, the trading activities undertaken by the appellant qualified as “exempted service” within the meaning of Rule 2(e) of the Credit Rules and that the “Explanation” added to the definition of “exempted service” with effect from 01.04.2011 only clarified that trading activities are and were always an “exempted service” for the purpose of the Credit Rules. Accordingly, the appellant, who was providing the taxable and exempted services (i.e. trading activities) and was utilizing the input services in respect of both taxable and exempted services, had contravened the provision of Rule 6 of the Credit Rules.
The Adjudicating Authority confirmed the Show Cause Notice by making observations that Explanation added to rule 2(e) of Credit Rules has merely clarified that trading is an “exempted service” and the Explanation to rule 2(e) of Credit Rules deserves to be given retrospective effect.
The Hon’ble CESTAT after taking submissions of both sides into consideration observed that in the case of Sedco Forex, 2005 (12) SCC 717, the Hon’ble Supreme Court clarified that if ‘Explanation‟ widens the scope of the main provision, then it would be presumed to have only prospective effect, unless a contrary intention is expressed by the legislature. Further, reliance was placed upon the Judgment of the Hon’ble Tribunal in Trent Hypermarket, Pune-III – 2019 (6) TMI 1327 – CESTAT Mumbai, while dealing with the definition of “exempted service” under rule 2(e) of the Credit Rules, held that trading cannot be treated as an “exempted service” for the period prior to 01.04.2011 and the Explanation added on 01.04.2011 was prospective and not retrospective. The same view was expressed by the Tribunal in Lenovo (India) [2021 (11) TMI 899 – CESTAT Bangalore] and the relevant paragraph is reproduced below:
“7. We find that for the period 01.04.2011, the issue stands decided in the case of Mercedes Benz India Pvt. Ltd. (supra) wherein it was held that trading is not an exempted service prior to 01.04.2011; provisions of Rule 6 requiring reversal of 6% of trading turnover is not applicable.”
On basis of the above, it was observed that that trading was not an “exempted service” prior to 01.04.2011. The demand confirmed in the impugned order cannot was set aside.
For the period 2006 to 2008, it was observed that demand would not survive as there was no restriction on availment of credit as the restriction was in respect of utilization.
Accrodingly, the appeals of the assessee were allowed.
FULL TEXT OF THE CESTAT ALLAHABAD ORDER
M/s. Ingersoll Rand Industrial Products Private Limited1 has filed this appeal to challenge the order dated 28.03.2013 passed by the Commissioner, Customs, Service Tax and Central Excise, Ghaziabad2.
2. The operative part of the said order is reproduced below:
(i) I confirm the demand amount of Rs. 28,56,667/- (Rs. Twenty Eight Lakhs Fifty Six Thousand Six Hundred & Sixty Seven Only) against the Party under the provisions of Explanation II as appended to Rule 6 (3) (c) of the Cenvat Credit Rules, 2004 read with provisions of Rule 14 of the Cenvat Credit Rules, 2004 and proviso to sub section (1) of Section 73 of the Finance Act, 1994;
(ii) I confirm the demand amount of Rs. 5,98,82,040/- (Rs. Five Crore Ninety Eight Lakhs Eighty Two Thousand & Forty Only) against the Party under the provisions of sub-rule (3A) to Rule 6 and Rule 14 of the Cenvat Credit Rules, 2004 read with proviso to Section 73(1) of the Finance Act, 1994;
(iii) I demand interest at the appropriate rate on the aforesaid amounts, as mentioned against S.No. (i) & (ii) above, under the provisions of Section 75 of the Finance Act, 1994 and;
(iv) I impose a penalty of Rs. 6,27,38,707/- (Rs. Six Crores Twenty Seven Lakhs Thirty Eight Thousand Seven Hundred Seven Only) [Rs. 28,56,667/- + Rs. 5,98,82,040/-], on the Party under the provisions of Section 78 of the Finance Act, 1994.
3. The first demand of Rs 28,56,667/- is under rule 6(3)(c) of the CENVAT Credit Rules, 20043. The second demand of Rs. 5,98,82,040/- is under rule 6(3)(1) of the Credit Rules. The first demand is for the period from April 2006 to March 2008 and is the amount paid in excess of 20% of service tax payable from the credit account, on account of credit of input services used in manufacture of dutiable goods/taxable services as well as in trading activity (exempted service) while the second demand is for the period from April 2008 to March 2011 @ 8%/6% of the value of traded goods (exempted service) on account of credit of input services used in the manufacture of dutiable goods/taxable services as well as in trading activity (exempted service).
4. The appellant is engaged in manufacturing and trading of pneumatic tools, material handling equipment and other related The appellant is also engaged in providing taxable services of „management consultants‟, „consulting engineering‟, „management, maintenance & repair‟.
5. During the relevant period, the appellant received various services for carrying out the above activities of manufacture of dutiable goods, provision of taxable services and undertaking the trading activity. In respect of such input services, the appellant availed CENVAT credit and utilized the same for payment of its outward tax liability.
6. The department believed that for the relevant period from April 2006 to March 2011, the trading activities undertaken by the appellant qualified as „exempted service‟ within the meaning of rule 2(e) of the Credit Rules and that the „Explanation‟ added to the definition of „exempted service‟ with effect from 01.04.2011 only clarified that trading activities are and were always an „exempted service‟ for the purpose of the Credit Rules. Accordingly, the appellant, who was providing the taxable and exempted services (i.e. trading activities) and was utilizing the input services in respect of both taxable and exempted services, had contravened the provision of rule 6 of the Credit Rules inasmuch as-
(a) for period from April 2006 to March 2008, the appellant utilized CENVAT credit in excess of 20% of service tax payable on taxable output services from the CENVAT credit account, in violation of rule 6(3)(c) of the Credit Rules; and
(b) for the period from April 2008 to March 2011, the appellant failed to follow the procedure prescribed under the provisions of rule 6(ii) and 6(iii) of the Credit Rules;
7. Accordingly, a show cause notice dated 14.10.2011 was issued to the appellant proposing the following demands.
(a) Demand of Rs. 28,56,667/- under rule 6(3)(c), being amount paid in excess of 20% of service tax payable from the credit account; and
(b) Demand of Rs. 5,98,82,040/- under rule 6(3)(1), being 6%/8% of the value of exempted services;
8. The demand for the period from April 2006 to March 2008 has been computed as under:
