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Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

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PJ/Case Laws/2012-13/1053

Cenvat credit available only if service utilized in relation to Output service

Case: CCE, RAIPUR Vs M/s G K MOTORS
 
Citation: 2011-TIOL-1614-CESTAT-DEL
 
Issue:- Cenvat Credit of service tax will be available only if services are utilized in or in relation to output service provided and not for trading activity.
 
Brief Facts:- Respondent-assessee is engaged in sales of motor vehicles of M/s FIAT India (P) Ltd as their authorized dealer and is also authorized service station for servicing of vehicles, for which they have taken service tax registration. During the period from 01.04.2005 to 31.03.2006, they took and utilized service tax credit of Rs.84,818/- in respect of GTA service, advertisement services, Insurance services, audit fee, Valuation charges, repair and maintenance, AC machine repairing, Courier service etc. received by them for use in their business.
 
Department was of the view that since these services are not the input services for their output service i.e. servicing of car as authorized service station., they were not entitled for cenvat credit. Besides this, on scrutiny of their ST-3 returns, it was found that the there was delay in filing of their returns. On this basis, a show cause notice dated 06.08.2007 was issued to respondent for recovery of cenvat credit alongwith interest, penalty u/r 15 of the CCR, Penalty u/s 76 of the Finance Act, and imposition of penalty for delay in filling of ST-3 Return was also proposed to be imposed.
 
The Assistant Commissioner confirmed the demand with interest and imposed penalties.
 
In appeal, the Commissioner (A) allowed the cenvat credit on GTA Services, Advertisement Services, Insurance Services, Audit services, Valuation Services, AC Machine repairing, Telephone Services, Cartage charges, Security charges, Courtier Charges but disallowed cenvat credit on hotel bills for lunches and dinners. He also set aside penalties imposed u/Section 76 and Section 77. The Commissioner (A) also upheld the penalty u/Rule 15 of the CCR, 2004 for wrong availment and utilization of cenvat credit.
 
Against this Assessee and Revenue both have filed appeal before the Tribunal.
 
Appellant’s Contention:- Revenue pleaded that since the assessee is engaged in trading activity of the cars and car parts and also servicing of the motor vehicles, the services, in question, in respect in which cenvat credit has been taken, cannot be said to be the inputs only for their output service and substantial amount of the services availed by them are in connection with their trading activity and to that extent they would not be eligible for cenvat credit.
 
Reasoning of Judgment:- The Tribunal noted that assessee is authorized dealer of M/s FIAT India Pvt. Ltd. engaged in sale of cars and car parts and besides this they are an authorized service station for servicing of motor vehicles, which is a taxable service. The services, in question, received by the respondent cannot be said to be exclusively used in or in relation to providing the output service, while they would be eligible for cenvat credit only in respect of those services which are in or in relation to providing their output services of authorized service station. They would not be eligible for cenvat credit in respect of the value of the services which have been received in connection with their trading activity. The Tribunal finds that this aspect has not been discussed in the impugned order. The impugned order is, therefore, set aside and the matter is remanded to the Original Adjudicating Authority for fresh adjudication after verification as to what extent, the services, in question, have been used in or in relation to the providing of output services of authorized service station by the respondent and then cenvat credit would be available only to that extent.
 
However, as regards the Commissioner (Appeals)'s order setting aside the penalty on the respondent under Section 76, since this is dispute regarding availment of cenvat credit, penalty under Section 76 has is called for, and the same has been correctly set aside.
 
Decision:- Matter Remanded back for quantification of cenvat credit demand.
 
Comment:- In this decision, the cenvat credit used in trading activity is being disallowed but there is no provision for the same before Budget 2011. But the analogy given in favour of the same is that the cenvat credit on input service is allowed to the extent, it is used in providing output service. Hence, the quantum of input service used in trading activity is not allowed. But the quantum of input service is very difficult to ascertain. If we have taken the credit on telephone service then no one can establish that which phone has gone for trading and the other has gone for providing service. The only solution is turnover ratio. But it will be totally against the provider of service as can be seen in this case. He is selling cars as well as running service station. The value of car is very high. So, the proportion will be favourable to revenue. They will reverse almost entire credit.
 
In Budget 2011, the trading activity has been held as exempted service. Though we cannot term “trading” as service but it will take time to be decided by the Courts. However, in case of proportionate reversal, the CBEC has considered our viewpoint and value of exempted service is taken as difference between sale price and purchase price or 10% of cost of goods sold. There is no need to reverse the credit on the basis of turnover. But this amendment has created many problems also. Even “as such removal” is being termed as trading activity by the department. The field formation asks for reversal on cenvat credit even if the goods are returned to supplier due to inferior quality. As a consultant, I always admire the creative mind of field formation. Thanks to them as they always bring work for us.   

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