2014 (5) TMI 983 - AT - Service Tax

Refund of CENVAT credit - export of exempted services - Revenue contends that appellant should not have utilized more than 20% of service tax payable during the period by utilizing the CENVAT credit as per the provisions of Rule 6(3)(c) of CENVAT Credit Rules 2004 - Held that - In the hierarchy of statutes, the law comes first, the rule comes later and the notification comes next. - harmonious construction of provisions of Rule 5 and Rule 6 is required to be made and Rule 6 cannot be read in such a manner that it negates what is provided under Rule 5. It has to be noted that in this case, the restriction is only for using the credit to the extent of more than 20% and there is nothing as regards the eligibility of the assessee for taking the credit. We are required to see whether the service has to be treated as exempted or service as exported and refund of CENVAT credit is admissible as per the provisions of Rule 5 - The only difficulty for getting the refund is that notification has not been issued and if the intention of the legislature was not to give refund Rule 5 would not have been contained the provision relating to refund subject to safeguards prescribed under the notification. Therefore, in my opinion, it would be appropriate to treat the output service as one exported and not exempted and therefore provisions of Rule 6(3)(c) is not attracted which, in my opinion, would be in accordance with legislative intention and would be in accordance with principles of harmonious construction - Decided in favour of assessee.

Summary

Issues:
1. Demand of CENVAT credit exceeding 20% utilization.
2. Treatment of exported services as exempted under Rule 6(3)(c) of CENVAT Credit Rules 2004.
3. Consideration of evidence for exported output service.
4. Interpretation of Rule 5 and Rule 6 regarding utilization of CENVAT credit.

Issue 1: Demand of CENVAT credit exceeding 20% utilization:
The appellant was demanded CENVAT credit of Rs.3,06,576/- for utilizing more than 20% of service tax payable during the period, as per Rule 6(3)(c) of CENVAT Credit Rules 2004. The appellant had already paid Rs.9,94,099/- before the show-cause notice was issued. The dispute arose as the Revenue treated the exported services as exempted under Notification No.21/2003.ST, leading to the demand for excess credit utilization.

Issue 2: Treatment of exported services as exempted under Rule 6(3)(c):
The Department viewed the exported services as exempted, triggering Rule 6(3)(c) restrictions on CENVAT credit utilization. The appellant argued that the output services were exported and not exempted. The tribunal emphasized the need to determine whether the output services were indeed exported, as the Revenue questioned the evidence supporting this claim. The tribunal found that the appellant's assertion of exporting output services should be accepted based on the available evidence and statements.

Issue 3: Consideration of evidence for exported output service:
The tribunal focused on establishing whether the output services were exported or exempted. Despite initial deficiencies in the show-cause notice and observations by the adjudicating authority, the tribunal relied on an employee's admission of exporting services to conclude in favor of the appellant. The tribunal stressed the importance of factual evidence in determining the nature of output services for tax purposes.

Issue 4: Interpretation of Rule 5 and Rule 6 regarding CENVAT credit utilization:
The tribunal analyzed the interplay between Rule 5, allowing CENVAT credit utilization for exported services, and Rule 6(3), restricting credit usage for exempted services. It prioritized Rule 5 over the notification treating exported services as exempted, emphasizing the legislative intent behind refund provisions. The tribunal harmonized the rules to conclude that the output services were exported and not exempted, thereby ruling that Rule 6(3)(c) restrictions did not apply. This interpretation aligned with legislative intent and principles of harmonious construction, leading to the allowance of the appeal with appropriate relief for the appellant.

In conclusion, the judgment resolved the issues surrounding CENVAT credit utilization, treatment of exported services, evidentiary considerations, and the interpretation of relevant rules to provide a comprehensive analysis favoring the appellant's position.