The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), relied on the Supreme Court order wherein it was held that cenvat credit cannot be availed on input services utilized for exempted services or trading goods.
The appellant, M/s Woodward Governor India Limited, is engaged in manufacture and trading of control panels equipment etc an were availing cenvat credit of the duties and taxes paid on inputs and input services. In the course of an audit conducted, the department noticed that the appellants have been using the input services in connection with the trading of the goods in addition to the manufacture.
The contention of the department is that such inputs do not qualify themselves to be called input services in terms of Rule 2(l) of Cenvat Credit Rules, 2004 and as such the appellants have wrongly availed Cenvat credit on trading activity and the same is recoverable under the provisions of Rule 14 of Cenvat Credit Rules, 2004.
Abhishek Jaju, counsel for the appellant submitted that on availment of CENVAT credit of Service Tax paid on common input services to the extent they are used in exempt services/ products, prior to 1st April,2011, exempt services do not include trading of goods and therefore, there was no need for reversal of any credit on common input services.
Authorized Representative, on the other hand, submitted that the appellants did not maintain proper records as per Rule 9 of Cenvat Credit Rules, 2004 and that the appellants have suppressed the facts and they cannot claim, that the Department was well aware of the fact that they were utilizing the input services both for manufacturing as well as trading, is factually incorrect as the appellants could not produce any documentary evidence.
The Supreme Court in the case of Lally Automobiles Ltd. Vs Commissioner, held that the CenvatCredit is not admissible on input services attributable to trading activity.
The Two-Member Bench of SS Garg, Judicial Member and P Anjani Kumar, Technical Member observed that “Lally Automobiles case being affirmed by the Apex Court becomes the law of the land and requires to be followed. Therefore, we do not find any infirmity in the findings of the adjudicating authority as far as the denial of the CENVAT credit on input services used in trading is concerned.”
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