2010 (7) TMI 417 - AT - Service Tax

Cenvat credit input services used for both in manufacture of exempted as well as dutiable final products and for providing both taxable and exempted services Demand of service tax along with interest and penalty input credit for some services, rejected - assessees contend that these services were utilised only in connection with the manufacture of dutiable final products/for providing taxable services and were not common for both dutiable as well as exempted products and taxable and exempted services Matter remanded

Summary

Issues:
Demand for failure to reverse CENVAT credit for input services used in both exempted and dutiable products and for providing taxable and exempted services.

Analysis:
The Commissioner of Central Excise (Appeals) upheld a demand of Rs. 1,67,755 along with interest and penalty of Rs. 10,000 due to the assessees' failure to reverse CENVAT credit for input services utilized in the manufacture of exempted and dutiable final products, as well as for providing both taxable and exempted services. The lower appellate authority allowed credit on specific services but disallowed credit on others not covered under rule 6(5) of the CENVAT Credit Rules, 2004. The assessees argued that the disallowed services were used only for dutiable final products or taxable services, not common for both exempted and dutiable products or taxable and exempted services. Consequently, the matter was remitted back to the adjudicating authority for a fresh decision after providing the assessees with a reasonable opportunity to present their case.

The judgment highlights the importance of complying with CENVAT credit rules concerning input services used in manufacturing processes and service provisions. It clarifies the eligibility criteria for claiming credit under rule 6(5) of the CENVAT Credit Rules, emphasizing the need for services to be common for both exempted and dutiable products or taxable and exempted services to qualify for credit. The decision underscores the requirement for a thorough review of the utilization of services in connection with different types of products and services to determine credit eligibility accurately.

By setting aside the impugned order and allowing the appeal through remand, the judgment ensures that the assessees have the opportunity to present their case effectively and have a fair chance to demonstrate the specific utilization of services in question. This approach promotes procedural fairness and upholds the principles of natural justice by granting the assessees a fresh opportunity to contest the disallowed credit claims based on the specific circumstances of service utilization in their business operations.