2020 (11) TMI 82 - AT - Service Tax

Refund of CENVAT Credit reversed - common input services used for taxable as well as exempt goods - appellants had not maintained separate accounts of the input services used for exempted services (trading) and taxable output services - HELD THAT - The appellant has been compelled to reverse credit @ 7% of the value of exempted services under Rule 6 (3) (i) read with Rule 6 (3D) (c) only for the reason they have not followed the procedure of intimating the department with regard to the option exercised. The Tribunal in the case of Philips Carbon Black Ltd. (supra)has observed that non-comlinace with the procedure prescribed under Rule 6 (3A) of the CCR does not result in loosing substantive right to avail the option of reversing proportionate credit as envisaged in Rule 6(3) (i); That procedural lapse is condonable and denial of substantive right is unjustified. There are no hesitation to hold that the view taken by the Commissioner (Appeals) that the appellant has to reverse credit as per Rule 6 (3) (i) is against the provisions of law. The appellant would be eligible for refund after reversal / paying of proportionate credit on exempted services by applying Rule 6 (3) (i). This amount however has to be verified. Appellant has furnished details of the credit availed and the amount reversed by them along with the letters issued to department. The indirect tax regime has been shifted from Service Tax to GST, appellant would be eligible for cash refund of such amount. For the limited purpose of quantification of the amount eligible for refund, the matter remanded to the adjudicating authority - appeal allowed by way of remand.

Summary

Issues:
Refund claim of excess input tax credit reversal under Cenvat Credit Rules, 2004.

Analysis:
The case involved a dispute regarding the refund claim of excess input tax credit reversed by the appellant under the Cenvat Credit Rules, 2004. The appellants had entered into Business Solutions and Business Promotion Agreements with M/s. Amazon Ltd., where service tax was collected by Amazon for services provided to the appellants. The appellants utilized input services for both trading and providing taxable services. They reversed the entire input service credit under wrong advice but later filed refund claims for the excess payment made after obtaining proper legal advice. The Commissioner (Appeals) held that the appellants were eligible for a refund of a specific amount but required them to pay/reverse credit as per Rule 6(3A)(i) due to non-compliance with a procedural requirement of intimating the department with regard to their option.

The appellant argued that the procedural requirement of intimating the department was merely procedural and should not result in the denial of the substantive right to credit. They relied on case laws to support their argument. The department, represented by Ms. Sridevi T., supported the findings of the impugned order, stating that the appellants had to reverse credit as per Rule 6(3)(i) due to non-compliance with the procedural requirement. The Tribunal analyzed the case and observed that the appellants were compelled to reverse credit only due to the failure to intimate the department about their option, which was deemed unjustified. Referring to case laws, the Tribunal held that the denial of substantive right based on procedural lapses was unwarranted. The Tribunal directed the lower authority to quantify the amount eligible for refund after complying with Rule 6(3)(i) and remanded the matter for further adjudication, ruling in favor of the appellant against the Revenue.

In conclusion, the Tribunal allowed the appeal, directing the lower authority to quantify the refund amount eligible for the appellant after complying with the relevant rules. The Tribunal emphasized that the refund being of input service credit, the question of unjust enrichment did not arise in this case. The decision was pronounced in open court on 03.11.2020.