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Trading was not an exempt service prior to 01- 04-2011 but CENVAT Credit on common services is required to be reversed on the basis of turnover
Facts:
The appellant, a manufacturer of motor vehicles also imported motor vehicles and sold them in domestic markets and therefore was a manufacturer as well as a trader. The appellant availed CENVAT Credit on common input services such as “advertising services”, “event management services”, “business auxiliary services” and “business support service”. The CENVAT Credit on the said input services was denied on the ground that ‘trading’ is an exempt service as per the explanation introduced under Rule 6(3) of CCR, 2004 and extended period was invoked as the appellant provided exempt services was not disclosed in the ST-3 returns and the Commissioner (Appeals) disallowed the entire CENVAT Credit on common services for the period March 2005 till March 2011 and also appropriated CENVAT Credit in relation to input services used exclusively for trading and further demanded 6% of the amount of trading turnover for the period post March 2011. The appellant submitted that the explanation was introduced w. e. f. April 2011 and therefore ‘trading’ can be considered as exempt service only from April 2011.
Held:
The Tribunal held that ‘trading’ was not a service till 31st March 2011 and therefore cannot be an exempt service. Amendment to rules cannot be applied retrospectively as Government has no powers to amend delegated legislation vide a notification. Rules can be amended retrospectively only by an Act. The Tribunal discussed the case of Metro Shoes Pvt. Ltd. vs. Commissioner 2008 (10) STR 382 (Tribunal), Loreal India Private Ltd. 2012 (281) ELT 264 and Orion Appliances Ltd. vs. Commissioner 2010 (19) STR 205 and held that the CENVAT Credit on common services is to be disallowed on the basis of trading turnover to total turnover (trading as well as manufacture turnover) and therefore directed the lower authorities to re-compute the liability. The Tribunal also held that ‘business’ used in the definition of “input service” under Rule 2(l) of CCR, 2004 relates to business of manufacture of final products and not to trading activity and therefore any input service in relation to “trading activity” is not to be treated as input service. The extended period of limitation is properly invoked as CENVAT Credit availed in relation to trading activity was not disclosed and therefore the penalty was also upheld.
Note: The Punjab & Haryana High Court upheld the order of the Tribunal disallowing CENVAT Credit on services relating to trading activity prior to 01-04-2011 reported at 2014-TIOL-2186- HC-Mad-CX.
