2013 (7) TMI 705 - AT - Service Tax

Cenvat Credit - Rule 6 - interpretation of the term allowed - Taking of and utilisation of credit - Revenue contended that they are distinct and different - clarification issued by the CBEC makes it clear that the assessee was allowed to take credit for the purpose of utilisation - There is no reason for interpreting the term allow in a narrow and restrictive manner as urged by the Revenue - the purpose and objective of CENVAT credit Rules it to allow a manufacturer/output service provider not only to take the credit but also to utilize the same for the purposes specified in the said Rules - said interpretation urged by the Revenue defeats the object and purpose of the CENVAT Credit Rules - Rules cannot be interpreted in such a way so as to make them nullity - there is no reason given as to why the word allowed should be interpreted in a narrow way appeal decided against revenue

Summary

Issues:
Interpretation of Rule 6(5) of the CENVAT Credit Rules, 2004 regarding availing and utilization of credit for input services in relation to taxable and exempted services.

Analysis:
The case involved a Revenue appeal against an Order-in-Appeal passed by the Commissioner of Central Excise & Customs concerning M/s. Asia Pacific Hotels and M/s. Indian Resorts Hotels Ltd., known as Indian Hotels Company Ltd. The dispute arose from the availing of CENVAT credit on input services used for both taxable and exempted services. The Revenue contended that Rule 6(5) only allowed for the taking of credit, not its utilization, leading to the issuance of notices for credit denial and recovery. The demands were based on the perceived misuse of credit for exempted services, resulting in financial penalties. The lower appellate authority ruled in favor of the appellants, emphasizing that credit availed inherently included its utilization. The Revenue challenged this interpretation, arguing that taking and utilizing credit were distinct actions. However, the respondent's counsel highlighted the Circular issued by the CBEC, supporting the view that allowing credit encompassed its utilization, crucial for achieving the objectives of the CENVAT Credit Rules.

The Tribunal analyzed the core issue of interpreting the term "allowing credit" in Rule 6(5) of the CENVAT Credit Rules. It emphasized that the purpose of these rules was not only to permit the taking of credit but also its utilization for specified purposes. As the respondents were service providers liable for service tax, restricting them to only taking credit without utilizing it would defeat the rules' intended objectives. The Tribunal rejected the Revenue's narrow interpretation, stating that such an approach would render the rules ineffective and contradict their purpose. Referring to the Circular from the CBEC, which clarified the rationale behind allowing credit for utilization, the Tribunal upheld the lower appellate authority's decision, dismissing the Revenue's appeal. The judgment underscored the importance of interpreting tax rules in a manner that aligns with their objectives and ensures effective implementation, ultimately emphasizing the need for a broad and purposive approach in interpreting legal provisions related to tax credits and liabilities.