The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that trading activities are considered as an exempted service only from 1.04.2011 after the adding of explanation to Rule 2(e) of the CENVAT Credit Rules,2004.
Dorma India Pvt. Ltd, the appellant assessee was engaged in the manufacture of “Automatic Door Operators and Door Closures” and parts and are registered with the Central Excise Department and also with the Service Tax Department for the taxable services rendered by them and they had been availing CENVAT credit of duty paid on the inputs and input services procured by them locally as well as imported.
The assessee appealed against the order passed by the Commissioner for confirming the demand for ineligible CENVAT credit on service tax paid on common input services attributable to trading activity along with the penalty and interest.
N. Viswanathan, the counsel for the assessee contended that the assessee was under a bonafide belief that input services used commonly for trading activities well as manufacturing activities the CENVAT credit was eligible and there was no intention to commit any fraud or suppression of facts with the intent to evade payment of duty.
Sridevi Tritula, the counsel for the department contended that the assessee availed and utilized credit of common input services used for trading as well as for manufacturing activity that is ineligible as trading activity is neither a service nor an activity of manufacture.
The assessee had not maintained separate accounts for the common input service used for manufacturing activity and trading activity and had not reversed the proportionate credit availed for trading activity.
The Bench observed that the amendment in CENVAT Credit Rules makes trading an exempted service by the Explanation added to Rule 2(e) of CENVAT Credit Rules came into force only with the effect from 1.4.2011.
Also held that as per the provision of Rule 6(5) of CENVAT Credit Rules, the assessee was eligible to avail credit on certain services though they are used commonly for exempted and taxable services.
The two-member bench comprising Sulekha Beevi (Judicial) and Sanjiv Srivastava (Technical) delivered a difference of opinion for recovery of credit availed by invoking the extended period of limitation and also held that the trading activities can be considered as an exempted service from the date of 1.04.2011.
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