2014 (8) TMI 858 - AT - Service Tax

Benefit of Cenvat Credit Scheme - utilization of excess Cenvat credit - Held that - expression exempted services covers not only the services taxable under Section 66 of the Act, which are fully exempt from service tax by some exemption notification issued under Section 93, but also those services which are not taxable under Section 66 of the Act. In view of the wordings of Rule 2(e) of Cenvat Credit Rules, 2004, the services, in question, have to be treated as exempted services . Accordingly, the Tribunal has held that inasmuch as the assessee was providing taxable as also exempted services of Interconnection usage service they are entitled to use 20% of the Cenvat credit of service tax availed in respect of inputs and input services. Extended period of limitation - Held that - Even though prior to the period March 2007, the inter-connectivity services were not taxable but the same have to be treated as exempted services , in the light of definition given in Rule 2(e) of the Cenvat credit Rules, 2004, and the provisions of Rule 6(3)(c) of Cenvat credit Rules, 2004 would get attracted. demand in the present case relates to the period 01.10.05 to 31.05.07 and the show cause notice stands issued on 05.03.09, by invocation of the longer period of limitation. In the decision of the Idea Cellular 2009 (2) TMI 91 - CESTAT NEW DELHI , relied upon by the revenue the benefit of limitation was extended to the assessee, on the ground that the dispute in the case related to a bonafide interpretation of law and the Department can not claim that they were not aware that the appellant were providing non-taxable services of inter-connectivity. As such in view of the same order, which stands adopted for holding against the assessee, on merits, the benefit of limitation is required to be extended. In as much as, the demand in the present appeal is wholly barred by limitation - Decided in favour of assessee.

Summary

Issues:
1. Availing Cenvat credit for both taxable and exempted services without maintaining separate accounts.
2. Utilization of excess Cenvat credit for interconnectivity services.
3. Interpretation of Rule 2(e) of Cenvat Credit Rules, 2004 regarding exempted services.
4. Application of Rule 6(3) of Cenvat Credit Rules, 2004 for utilizing Cenvat credit.

Analysis:
1. The appellant, registered for taxable Telecom services, also provided exempt inter unit connectivity services pre-1.6.07 without separate account maintenance for inputs used in both services, violating Rule 6(2) of Cenvat Credit Rules, 2004.
2. Show cause notice alleged excess Cenvat credit utilization of Rs. 8,90,445 for dutiable and exempted services, leading to demand confirmation, interest, and penalty imposition by the adjudicating authority upheld by the Commissioner (Appeals).
3. The issue revolved around the definition of 'exempted services' under Rule 2(e) of Cenvat Credit Rules, 2004, where the Tribunal, citing Idea Cellular Ltd. case, deemed interconnectivity services as 'exempted services' even if not taxable under Section 66 of the Act.
4. Rule 6(3) of the Rules limits Cenvat credit utilization to 20% for providers offering both taxable and exempted services, applying to the appellant's case of interconnection usage services.
5. The Tribunal decision in Idea Cellular Ltd. case clarified the treatment of 'exempted services' and upheld the 20% credit utilization limit for providers offering both dutiable and exempted services.
6. The judgment extended the benefit of limitation to the appellant, citing a bonafide interpretation of law in the dispute, rendering the demand for the period 01.10.05 to 31.05.07 as time-barred, leading to the allowance of the appeal and disposal of the stay petition.