Case Law Details
CESTAT decision in the case of Orion Appliances Ltd Vs. CST, Ahmedabad (2010-TIOL-752-CESTAT?
AHM)
Brief Facts:- Orion Appliances Ltd (hereinafter referred to as the „appellant?) was engaged in providing maintenance and repair and commissioning and installation services. The appellant was also engaged in trading activities. The appellant availed CENVAT credit of service tax paid on various input services including advertising, security, courier, telephone and banking services which were used in provision of taxable output services as well as for trading activities.
The appellant utilised the entire credit of service tax on such input services against it?s service tax liability on output services. The revenue contended that the appellant had not kept separate records for CENVAT credit attributable to taxable and exempt services and therefore had availed and utilised excess credit than permitted in terms of Rule 6(3) of the erstwhile CENVAT Credit Rules, 2004 and Rule 3(5) of the erstwhile Service Tax Credit Rules, 2002 since the services were not entirely used for providing taxable output services and such excess credit was therefore liable to reversal as per the Rule 6(3) and Rule 3(5) ibid.
Contentions of the Appellant
The appellant contended that trading activity in not an exempted service and thus Rule 6(2) of the CENVAT Credit Rules, 2004 („Rule 6(2)?) and Rule 3(4) of the erstwhile Service Tax Credit Rules, 2002 („Rule 3(4)?) requiring maintenance of separate records are not applicable. As per Rule 6(2) and Rule 3(4) an assessee is required to maintain separate records only in case of provision of taxable and exempted services. As the activity of trading cannot be considered as a service, the question of maintenance of separate set of accounts does not arise.
Contentions of the Respondent
The respondent while stating that the appellant had utilised excess credit contended the following –
- Provisions of Rule 6(2) and Rule 3(4) are applicable to the appellant and hence separate records should be maintained in respect of input services used for trading activity and other taxable services.
- The appellant had not reversed the credit in accordance with Rule 6(3) and Rule 3(5) has thus availed and utilised excess credit.
Observations of CESTAT
The following observations were made by the single member Bench of the Hon?ble CESTAT, WZB, Ahmedabad –
- Trading activity is nothing but purchase and sale of goods and is covered under the sales tax legislation; hence trading activity cannot be called as service. Since trading activity cannot be called as service, it cannot be construed as exempted service.
- Rule 6 of the CENVAT Credit Rules, 2004 and Rule 3 of the erstwhile Service Tax Credit Rules, 2002 provide for obligations of service provider rendering taxable and exempt/ non taxable service. Since trading activity is not a service at all, these provisions would not be applicable to the assessee.
- Trading activity is out of the purview of the Central Excise Act, 1944 as well as the Finance Act, 1994.
- There are no provisions in the CENVAT Credit Rules, 2004 or the erstwhile Service Tax Rules, 2002 to provide for manner of treatment of CENVAT credit in case of a person providing taxable output services as well as engaged in trading activities.
- The only correct legal position appears to be that it is for the appellant to choose and segregate the quantum of CENVAT credit attributable to the trading activity and exclude the same for availment of credit.
- Since it may not be possible to forecast the turnover of trading activities and output services in advance the reversal can be done at periodic intervals such as quarterly or half yearly.
- This proposition is not against the law since many decisions of the various High Courts and Tribunals have held that subsequent reversal of credit amounts to non-availment of credit.
Conclusion
The Hon’ble Tribunal while remanding the matter back to the Adjudicating Authority held that amount of CENVAT credit attributable to the trading activities should be reduced from the pool of eligible credit available for utilization as per standard accounting principles.
The dept. should not have gone for 6(2) and 3(4). The appellant is not eligible to avail the credit intoto in as much as the same has not been used for rendering an output service. In my opinion Tribunals view is corrent and in order