2025-VIL-1711-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax – Reversal of proportionate Cenvat Credit, Taxable/Exempted Services, Trading Activity, Demand invoking extended period of Limitation, Penalty - Department held that the Appellant did not follow the provisions of Rule 6(2) and 6(3) of the Cenvat Credit Rules, 2004 in relation to the utilization of Cenvat credit on common input services used for both excisable goods and taxable/exempted services – Demand for recovery of the irregularly availed Cenvat credit along with equal penalty - Whether trading activity can be considered as an exempted service for the purpose of applying the provisions of Rule 6(2) and 6(3) of the CCR - HELD - Though the appellants had utilized more credit, which was in excess of the cap of 20%, still there was no provision during the material time for it to lapse and therefore, they could have again re-utilized the same during the subsequent period and hence, at best, they will be liable for payment of interest only to the extent they had exceeded the cap of 20% for discharge of service tax liability - Prior to the amendment in Rule 2(e) of the CCR with effect from 01.04.2011, trading activity could not be considered as an exempted service. The Tribunal relied on the judgments in Lally Automobiles Pvt Ltd and Bharat Heavy Electricals Ltd, which held that trading activity is neither a service nor a manufacture, and therefore, the provisions of Rule 6(2) and 6(3) of the CCR would not apply. The appellant is required to reverse the proportionate Cenvat credit utilized for the trading activity along with applicable interest – The demand for the period prior to 01.04.2008 is set aside, as the appellant is liable to pay only interest on the excess credit utilized. For the period after 01.04.2008, the appeal is remanded back to the Original Authority only for the limited purpose of computation of amount of credit required to be recovered along with interest and applicable penalty thereon – The appeal is partly allowed - Whether the extended period of limitation was correctly invoked by the Department - HELD - The findings regarding the invocation of the extended period are pure findings of fact based on the facts of each case. The Appellant was aware of the issue of reversal of credit/payment of amount under Rule 6(2) and 6(3) of the CCR since 2008, and had themselves started reversing the proportionate credit from 01.04.2010, indicating that they did not have a genuine belief that they could claim the credit for the trading activity.
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