so long as activity is service and even if it is not taxable, it has to be considered as an exempted service - it is not necessary that service should be taxable and an exemption notification exempting from levy of service should have been issued: CESTAT

DURING the period from 10/2005 to March 2008, the appellants had paid service tax due from them by utilizing more than 20% of the credit available. Taking a view that appellants were also providing cargo handling service in respect of exported goods which is not taxable and the same is treated as exempted service and therefore in the absence of separate records for common inputs, the appellant could not have utilized more than 20% of the tax payable from CENVAT credit account, proceedings have been initiated. Such Proceedings have culminated in confirmation of demand for service tax paid from CENVAT credit account during the relevant

period with interest. Penalties have also been imposed.

At the outset, the counsel put forth the argument that the cargo handing service in respect of export cargo cannot be considered as an exempted service at all. He submits that in the definition of taxable service itself the same has been excluded.

Tribunal observed,

According to Rule 2(e) of CENVAT Credit Rules, 2004 (CCR) “exempted service” means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under Section 66 of the Finance Act.

From the above definition of “exempted service”, it becomes clear that so long as the activity is a service and even if it is not taxable, it has to be considered as an exempted service. It is not necessary that a service should be taxable and an exemption notification exempting from levy of service should have been issued. In view of this position, the non-taxable service rendered by the appellant has to be considered as an exempted service and therefore during the relevant period, the appellant could not have utilized CENVAT credit beyond the limits prescribed under the Rules for payment of service tax on taxable service unless they maintained separate accounts in respect of inputs/input services used for providing output services in accordance with provisions of CCR.

The counsel submitted that they had entertained a bona fide belief and had assumed that since cargo handling service did not include cargo handling of export goods, it would not be taxable and therefore cannot be considered as an exempted service.

The Tribunal observed:

When the statute is clear and there is no ambiguity, no citizen has the liberty or luxury of assuming and acting on his assumptions without looking into the law and without any verification whatsoever. More so, in matters like service tax where the responsibility of assessment is on the assessee and not on the department. Such being the position, no one has the liberty to make assumptions about the liability. The law requires a person to read it, understand it and implement it. Failing to do so and assuming the provisions which are non-existing would lead to consequences which the assessee has no option but to take.

The next submission was that the appellants had huge CENVAT credit in their balance and the activity of the appellant had not resulted in any revenue loss to the Government and the situation is revenue neutral.

The Tribunal observed,

We cannot go into hypothetical consideration when the position is legally clear. In the absence of detailed information regarding the amount payable every month, the credit available every month, the amount of services provided in DTA, non-taxable services, etc., no conclusion can be reached and no details have been made available in the appeal memorandum. Nevertheless, the one claim made by the learned counsel appears to be a reasonable proposition. The learned counsel submitted that at best the appellants can be said to be liable to pay interest for the amount which was paid from CENVAT credit amount instead of making payment in cash to discharge their service tax liability. He also submitted that in view of the circumstances in these cases, no penalty would be liable. The stand taken by the department which in our opinion is legally correct, would result in a situation where the appellants have to deposit the entire amount of service tax utilized in excess of 20% but they can take back the credit into their account and utilize the same for subsequent period. That being the position, obviously if we require the appellant to pay interest on the excess utilization, it would reduce the complications involved in making payment in cash and taking back the CENVAT credit thereafter and would reduce work for all concerned. In Solar Chemferts Pvt. Ltd. case reported in2011-TIOL-1968-CESTAT-MUM , this Tribunal took a similar view in respect of the contravention of Rule 8(3) of Central Excise Rules. In our opinion, it would be appropriate to follow the same in this case also.

In view of the above observations, the appellants are directed to calculate the amount payable as interest because of excess utilization of credit and make payments of the same. This should be done within 12 weeks and on or before 7.10.2014. Thereafter the Commissioner (the adjudicating authority in this case) on receipt of such intimation, would get the payments made by them verified as regards its correctness and submit a report before the Bench when the matter comes up for noting compliance on 11.11.2014. Needless to say a copy of the report to be placed before the Bench will be handed over to the appellants also so that they can respond to such verification report. Final decision as to whether the amount deposited is in accordance with law and fulfills the requirement of payment of interest for hearing the appeals would be taken on 11.11.2014. At present, the requirement of pre-deposit in excess of the interest payable is waived stay against recovery is granted till the directions herein above are complied with and a final order about finalizing the stay application is passed by this Tribunal.