Date – 18 August 2022

Facts

• The Appellant, M/s. Ingersoll Rand Industrial Products Private Limited, is engaged in manufacturing and trading of pneumatic tools, material handling equipment and other related goods. The appellant is also involved in providing taxable services of “management consultants”, “consulting engineering”, “management, maintenance & repair”. While carrying out such activities the appellant availed CENVAT credit and utilized the same for payment of its outward tax liability.
• The Dept. believed that for the period April 2006 to March 2011 the trading activities undertaken by the appellant qualified as “exempted service” within the meaning of rule 2(e) of the Credit Rules. The Explanation added to the definition of exempted service with effect from 01.04.2011 only clarified that trading activities are and were always an exempted service for the purpose of the Credit Rules. Hence, as the Appellant was utilizing the input services in respect of both taxable and exempted services, and therefore has contravened the provisions of Rule 6 Credit Rules.
• A show cause notice dated 14.10.2011 was issued against the appellant demanding Service tax.
• Aggrieved by the subsequent Orders, Appellant filed for an appeal.

Issue

• Whether ‘’trading‟ was an exempted service prior to 01.04.2011 as per the Explanation to rule 2(e) of the Credit Rules and whether the explanation is not retrospective in nature?

Order

• The authorities referred to the Supreme Court decision in Sedco Forex, Income tax - 2005, were it was clarified that if ‘’Explanation‟ widens the scope of the main provision, then it would be presumed to have only prospective effect, unless a contrary intention is expressed by the legislature.
• The authorities also referred the Trent Hypermarket case and held that trading cannot be treated as an “exempted service” for the period prior to 01.04.2011 and the Explanation added on 01.04.2011 was prospective and not retrospective. It is, therefore, clear that trading was not an “exempted service” prior to 01.04.2011. The demand confirmed in the impugned order cannot, therefore, be sustained and is liable to be set aside.
• The authorities further observed that the demand for the period 2006 to 2008 would not survive as there was no restriction on availment of credit as the restriction was in respect of utilization. Thus, the demand of Rs. 28,56,667/- against the appellant is not sustainable
• Thus, the demand of Rs. 5,98,82,040/- for the period from April 2008 to March 2011 cannot be sustained.