M/s. Sify Technologies Limited Versus Commissioner of GST and Central Excise Chennai South
Service Tax
2018 (11) TMI 179 – CESTAT CHENNAI – TMI
CESTAT CHENNAI – AT
Dated:- 30-10-2018
Appeal No. ST/184/2012 – Final Order No. 42732/2018
Service Tax
Ms. Sulekha Beevi C.S., Member (Judicial) And Shri V. Padmanabhan, Member (Technical)
Shri Raghavan Ramabhadran, Advocate for the Appellant
Shri K. Veerabhadra Reddy, JC (AR) for the Respondent
ORDER
Per Ms. Sulekha C.S.
Brief facts are that the appellants are registered for providing various taxable services under the category of on-line information and database access / retrieval, internet café, franchise services, etc. They are having centralized service tax registration and are a member of Large Taxpayer Unit. They are also rendering exempted services such as software development, e-learning for corporates and companies etc. during the period prior to 16.5.2008, after which date these services became ta
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billed separately to the end-customer and thus were engaged in trading activity also. In respect of taxable output service rendered, service bill is raised separately and service tax is paid only on the service charges billed / realized. They were also availing input tax credit on various services like advertising, air travel agents, business auxiliary service, Chartered Accountants etc. which were common input services used for both taxable services as well as trading activity. The department was of the view that the appellants are not eligible for credit on the common input services used by appellant for trading activity as per Rule 3 of CENVAT Credit Rules, 2004. On intimation, the appellant filed intimation dated 14.10.2010 to exercise option with effect from 14..2008 for reversal of proportionate credit under Rule 6(2)(ii) of CENVAT Credit Rules, 2004 and reversed an amount of Rs. 44,68,272/-relating to the CENVAT credit availed on trading activities in respect of appellant and S
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osed to demand interest and impose penalties. After due process of law, the adjudicating authority confirmed the amount of Rs. 13,90,14,831/- along with interest, ordered appropriation of the already reversed amount and imposed equal penalty under Rule 15(4) of CENVAT Credit Rules, 2004. Aggrieved, the appellant is now before this Tribunal.
2. On behalf of the appellant, ld. counsel Shri Raghavan Ramabhadran appeared and argued the matter. He submitted that with effect from1.4.2011, an explanation was introduced to the definition of exempted services under Rule 2(e) wherein it was clarified that trading is an exempted service. The period involved in the present case is from October 2005 to March 2010. He submitted that in the show cause notice, the department has invoked Rule 3 of CENVAT Credit Rules, 2004 for the purpose of denying the credit availed on trading activity. The appellant had reversed the credit attributable to trading as per Rule 6(3)(ii) of CCR, 2004. In para 10 of the
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butable to trading cannot sustain. Show cause notice is the foundation of the proceedings and when the department has not invoked Rule 6 in the show cause notice, the entire proceeding fail in the light of the decision of the Hon'ble High Court of Madras in Ruchika Global Interlinks (supra). He also places reliance on the judgment of the Hon'ble Supreme Court in the case of Commissioner of Central Excise Vs. Brindavan Beverages P. Ltd. – 2007 (213) ELT 487 (SC) to argue that show cause notice is the foundation of the proceedings.
2.1 The ld. counsel has placed reliance upon the decision of the Tribunal in the case of L.G. Electronics India Pvt. Ltd. Vs. Commissioner of Central Excise – 2017 (3) GSTL 249 (Tri. All.) and submitted that on identical facts, the Tribunal has held that Rule 14 cannot be applied for recovery of credit attributable to trading alone without invoking Rule 6 when the allegation is that credit availed is not eligible under Rule 3 of CCR, 2004. It is also fairly s
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finite knowledge of the fact that the appellant is engaged in providing exempt service in the nature of trading. That as per the decision in Nizam Sugar Factory Vs. Commissioner of Central Excise – 2006 (197) ELT 465 (SC), thus the extended period cannot be invoked.
2.3 With regard to penalty, he submitted that since the recovery of CENVAT credit is under Rule 14 cannot sustain, the imposition of penalty under Rule 15(4) merits to be set aside. In addition, being an interpretational issue, penalty cannot be imposed.
2.4 Without prejudice, the ld. counsel submitted that the appellant, in any case is only liable to reverse the proportionate credit to trading activity as per Rule 6 and the same would be only Rs. 64,08,446/- and the appellant has already reversed Rs. 44,68,272/-.
3. On behalf of Revenue, the ld. AR Shri K. Veerabhadra Reddy supported the findings in the impugned order. He submitted that the appellants were very well aware that trading is not an exempted service. It is n
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llegation is wrong availment of credit which is not eligible as per Rule 3(1) r/w Rule 2(l) of CENVAT Credit Rules, 2004. The argument of the appellant all along has been trading activity being an exempted service, they are liable to reverse only proportionate credit under Rule 6 of CENVAT Credit Rules, 2004. Instead the formula adopted for quantifying the demand is the proportion of value of sale of goods to the total income from sale of all goods and services applied to the total credit availed. The case of L.G. Electronics India Pvt. Ltd. (supra) cannot be applied to the facts of the case since in the said case the demand was set aside for the reason that the show cause notice did not make any allegation as to the ineligibility of CENVAT credit. That in the present show cause notice, it is clearly spelt out that the credit is not eligible under Rule 3(1) and therefore the said case law is distinguishable on facts.
4. Heard both sides.
5. The main contention put forward by the ld.
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trading activity as an exempted service. Corresponding amendments were introduced in Rule 6(3A) as to how to calculate the amount that has to be reversed when trading is an exempted service. In Ruchika Global (supra) the Hon'ble jurisdictional High Court held that trading has to be considered as exempted service even prior to 1.4.2011 and only proportionate credit attributable to trading is to be reversed as per Rule 6 of CENVAT Credit Rules, 2004. Undisputedly, the appellants were availing common input services for both taxable service and trading activities and did not maintain separate accounts. In the reply to the intimation given prior to issuance of show cause notice, they have stated that they reversed an amount of Rs. 44,68,272/- and informed the department that they have reversed the proportionate credit pertaining to common input services used for trading as under Rule 6(3)(ii) treating trading activity as an exempted service. In para 10 of the show cause notice, the departm
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tware Development and e-learning etc. It is also stated that the SBUs such as Finance, Human Resource, Administration and Corporate did not render any service and were used for accounting and support service only which were common to all SBUs. In para 4.19 of the reply the appellant has stated as under:-
“When the input service relates to an output services that is exempt or relating to trading activity, n o credit is taken and the entire amount including service tax thereon is debited to expenditure. Accordingly, no CENVAT credit on service tax paid on input service is taken for those input services which are used in SBUs which provide exempted service or involved in trading activity. The input services that are common are accounted under the SBUs of Finance, Human Resource, Administration or Corporate and the credit accounted under common input services. The finance department consolidates all the transactions and prepared periodical financial statements and reports required for mee
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e notice proposes to deny the credit availed on trading as per Rule 3 of CCR, 2004. Rule 3 does not allow credit to be allowed on trading activity. We have no quarrel that the Hon'ble jurisdictional High Court in the case of Ruchika Global Ltd. (supra) has held that for recovery of proportionate credit availed on trading, the trading activity has to be considered as an exempted service prior to 1.4.2011 also. But the said decision was in a case where Rule 6 was invoked for disallowing the credit availed on common input services used for trading also when separate accounts were not maintained. Here the appellant contends to have maintained separate accounts. But such separate accounts is not as provided by Rule 6 is the finding of Tribunal in the appellant's own case as per Final Order cited supra. It is seen that the separate accounts were maintained by appellant for serving its business purposes and not according to provisions of Rule 6(1), (2) or (3) of CCR, 2004. The Tribunal in the
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rvices' meant those 'taxable services which were exempt from the whole of service tax and included those service on which service tax was not leviable under section 66 of the Act'. Based on this conclusion, the Hon'ble High Court held as under:-
“11. Having regard to the rule position and given the admitted fact that no separate accounts were maintained by the appellant, with regard to the taxable and non-taxable services, clause (c) of sub-rule 3 of Rules 6 of 2004 Rules would apply”.
6.2 It is therefore obvious that the Hon'ble High Court was only addressing the aspect of whether by invoking Rule 6(3) trading would be exempted services even prior to 1.4.2011. However, in the instant case, what is alleged in the show cause notice is that as per Rule 2(l) of the CENVAT Credit Rules, 2004, input service means 'any service used for providing output service'. As trading activity undertaken by the appellant is not taxable service, hence the appellant is not eligible to avail credit on
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exempted service even prior to 1.4.2011 and therefore credit availed on trading is admissible. In Ruchika Global, Rule 6 of CENVAT Credit Rules, 2004 was invoked to demand the proportionate credit availed on trading. In the present case, only Rule 3 and Rule 6 has not been invoked. When credit is not admissible under Rule 3, the appellant cannot content that Rule 6 ought to have invoked and that trading is held by the Hon'ble High Court to be exempted service prior to 1.4.2011. The appellant cannot blow both hot and cold.”
We, therefore, hold that the decision in the case of Ruchika Global Ltd. (supra) will be of no assistance to the appellant.
5.4 As already stated, the show cause notice invokes Rule 3 to disallow the credit for the reason that no credit can be availed on trading as per this provision. Undisputedly, the appellants have availed credit on trading activities. Therefore, the demand raised disallowing the credit on trading in our view is legal and proper. The decision
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