Whether Cenvat needs to be reversed proportionately of the GTA services when used in both taxable and exempted goods and services?

PJ/CASE LAW/2015-16/2604

Case:- APOLLO TYRES LTD. Versus COMMISSIONER OF C. EX., CUSTOMS & S.T., CALICUT

Citation:- 2014 (36) S.T.R. 835 (Tri. - Bang.)

Brief facts:- Appellant is a manufacturer of tyres. During the period in dispute, the appellant was clearing tubes and flaps to Original Equipment Manufacturers (OEMs) and dealers. Even though tubes and flapswere cleared under separate invoices, tubes and flaps were inserted into tyres at the time of clearance. In respect of clearance to Motor Vehicles Manufactures, Cenvat credit was taken of the duty already paid on tubes and flaps. As regards the tubes and flaps cleared to the appellant in the replacement market, no Cenvat credit of duties paid by the supplier for tubes and flaps was taken by the appellant. Proceedings were initiated on the ground that the appellant should have maintained separate accounts since the sale of tubes and flaps to the dealers in the replacement market amounts to trading and since the appellant did not maintain separate accounts of input services, namely GTA service utilized for tubes and flaps and tyres partly, the appellant is required to pay 5%/10% of value of tubes and flaps cleared as trading activity. As a result of the proceedings initiated, the impugned order has been passed whereby demand of Rs. 49,00,82,011/- for the period from August, 2006 to March, 2011 in terms of Rule 6(3) of Cenvat credit Rules, 2004 with interest. Penalty equal to the duty demanded has also been imposed.

Appellant’s contention:- Learned counsel for the appellant submitted that trading activity cannot be considered as a service at all. For this purpose, he relied upon the decision of the Tribunal in the case of Orion Appliances Ltd. v. Commissioner of Service Tax, Ahmedabad [2010 (19)S.T.R.205 (Tri.-Ahmd.)]. He also submitted that trading can be never considered as an exempted service. For this purpose, he drew our attention to the definition of ‘exempted services’. During the relevant period, the ‘exempted service’ means taxable service which is exempted from whole of the tax leviable thereon and includes service on which no service tax is leviable under Section 66 of the Finance Act, 1994. He submitted that when trading itself is not at all a service, it cannot be considered as an exempted service. He submitted that with effect from 1-4-2011, the definition of ‘exempted service’ was amended and it was specifically clarified that exempted service would include trading. Therefore, during the relevant period, the trading activity of the appellant could not have been considered as a service at all and therefore, the provisions of Rule 6(3) of the Cenvat Credit Rules are not at all applicable to the case of the appellant. Further, he also submitted that Revenue has demanded the Service Tax on the value of traded goods. He submitted that for demanding an amount as contemplated under Rule 6(3) of the Cenvat Credit Rules, 2004, the value of traded goods could not have been taken.

Respondent’s contention:- learned A.R. relied on the decision of the Tribunal in the case of Metro Shoes Pvt. Ltd. v. Commissioner of Central Excise, Mumbai-I [2008 (10)S.T.R.382 (Tri.-Mumbai)] and submitted that the appellant is not eligible for proportionate credit in respect of the services utilized for trading activities.

Reasoning of judgment:- They find that the decision in the case of Metro Shoes Pvt. Ltd. (supra) also is on the same line as in the case of Orion Appliances Ltd. (supra). They have considered the submissions made by both sides in detail. They find that even though it was the submission of the appellant that the entire demand cannot be sustained, yet, they find that the decisions of the Tribunal in the case of Orion Appliances Ltd. (supra) and Metro Shoes Pvt. Ltd. (supra) took a view that proportionate credit attributable to trading arrived at in accordance with Standard Accounting Principles is required to be reversed. After this was proposed by the Bench, learned Counsel even though submitted that this was not the ground on which show cause notice was issued, yet, agreed that in view of the decisions of the Tribunal, proportionate credit may be directed to be reversed without accepting that his stand is wrong. Further, he submitted that extended period could not have been invoked. This is because of the appellant has written a letter to the department as early as 12-4-2004 giving details of activity and explaining the process. The letter explains that the tubes and flaps can be treated as accessories of tyres and value of tubes and flaps have not been included in the price of tyres. It is also stated in the letter that appellants are not availing Cenvat credit on bought out items meant for replacement in the market. Further, he also submitted that return filed by them indicated that the credit has been taken on GTA service and this would show that there was no attempt to suppress facts or make any mis-declaration. If the GTA service credit entry is reflected in return and the appellant have specifically written about their trading activity, it cannot be said that they have suppressed the facts. As regards mis-declaration, having regard to the size of the appellant and the fact that the appellant never took Cenvat credit of Service Tax attributable to GTA service for inward transportation of tubes and flaps (as stated by learned Counsel in reply to query from the Bench), the fact that tubes and flaps were inserted into tyres and the weight of tubes and flaps compared to the weight of tyres is comparatively less, it cannot be said that there was mis-declaration with intention to evade duty. Therefore, we consider that the submissions made by learned Counsel that the demand should be limited to normal period is valid and has to be accepted. In such a situation, obviously, the question of imposition of penalty does not arise.
In view of the above discussion, the appellant is directed to proportionately reverse the Cenvat credit attributable to service tax paid on GTA service utilized in respect of tubes and flaps inserted into tyres in accordance with standard accounting principles within the normal period of limitation. The appeal is decided in above terms.

Decision:- Appeal disposed off.

Comment:- The analogy of the case is that appellant is directed to proportionately reverse the Cenvat credit attributable to service tax paid on GTA service utilized in respect of tubes and flaps inserted into tyres in accordance with standard accounting principles within the normal period of limitation. Return filed by them indicated that the credit has been taken on GTA service and this would show that there was no attempt to suppress facts or make any mis-declaration.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2604

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