B. Ravichandran ORDER
B. Ravichandran, Member (T)
1. The appeal is against order dated 30-7-2012 of Commissioner (Adjudication), Central Excise, New Delhi. The brief facts of the case are that the appellants are engaged in sales and services of Honda cars as exclusive authorized dealers. They are registered with department for payment of Service Tax under the categories of "Authorized Service Station" and "Business Auxiliary Service". They have availed Cenvat credit of duty paid on various inputs and tax paid on better services in terms of Cenvat Credit Rules, 2004. Upon scrutiny of the records maintained by the appellant, the officers noticed that the appellants availed Cenvat credit and used the same for payment of tax on output services. It was seen that the appellants were having trading activities which is not liable to Service Tax and accordingly credit taken on input services attributable to such trading activities was sought to be denied on proportionate basis. Proceedings were initiated which resulted in the impugned order. The original authority held as below:
"26. The rules clearly provides that the exempted services includes services on which no service tax is leviable under Section 66 of the Finance Act, 1944 (sic 1994). Trading is a service liable to VAT/sales tax by States and outside the purview of Service Tax. Thus, no service tax is leviable to trading under Section 66 of the Finance Act. This position was clearly upheld by CESTAT in Metro Shoes case MANU/CM/0291/2008 : 2008 (10) S.T.R. 382 (Tri.-Mumbai) wherein it was held that No. Cenvat is eligible for inputs/services used for trading as the trading is an exempted service. The explanation added to the Rule 2(e) vide Notification No. 3/2011-Central Excise (N.T.) : MANU/EXNT/0006/2011 makes it more than clear as it states that for removal of doubts, it is hereby clarified that "exempted services" includes trading. This explanation only clarify the existing position as held by Hon'ble CESTAT in Metro shoe case in 2008. Therefore, it cannot be said that it is effective only from 1-4-2011.
27. The assessee contention that no Cenvat Credit is recoverable from them as they have not availed any CENVAT credit on the inputs which were exclusively used in the exempted services under Rule 6(3) of the CENVAT credit Rules is also not sustainable as Rule 6(3) is applicable for the common inputs which are used for providing for taxable services and exempted services which is the case of the notices since they are providing both taxable services i.e. servicing of the cars and non taxable services of trading in cars. Explanation (ii) to the rule clarify that if any input or services are used for providing exclusively for exempted service the same cannot be availed as common input service."
2. The original authority followed the procedure for calculating the value of exempted service (trading) as per the provisions introduced vide Notification No. 3/2011-C.E. (N.T.) : MANU/EXNT/0006/2011, dated 1-3-2011 as amended by Notification No. 13/2011-C.E. (N.T.) : MANU/EXNT/0018/2011, dated 31-3-2011. Applying such calculation, the original authority held that credit amounts of Rs. 24,84,530/- and Rs. 31,74,799/- for the periods covered by two SCNs are recoverable from the appellant. He also imposed equal amount of penalties on the appellant in terms of Rule 15 of Cenvat Credit Rules, 2004. A further penalty of Rs. 5000/- each in respect of two demands were also imposed under Section 77 of the Finance Act, 1994.
3. The ld. Consultant for the appellant submitted that tradi........