2014 (10) TMI 414 - AT - Service Tax

Utilization of 20% excess credit of tax payable - contravention of Rule 6(3)(C) of Cenvat Credit Rules, 2004 - exemption Notification No. 22/2006, dated 31-5-2006 - Cenvat credit taken of service tax paid on commission paid to agencies - whether the credit paid on sales commission is an admissible input for the output service viz. repair and maintenance of the XBIS - Held that - it cannot be said that maintenance and repairs services rendered by the appellant are part of the conditions of the sale. In my opinion, in this case, the sale and AMC cannot be said to be the result of composite contract. In such circumstances, the stand taken by the original adjudicating authority that the credit paid on sales commission is not admissible has to be upheld. However, at this stage learned C.A. submits that even the credit which was not taken by the appellant at all has also been included for the purpose of demand. He is not able to quantify the exact amount. Therefore, actual amount of credit taken has to be determined by the original adjudicating authority. In the case of sales contract and AMC, the appellant could have entertained a view that credit was admissible. Having regard to the type of item being sold and terms and conditions of the sale, I consider that this is a fit case for considering waiver of penalty under Section 80 of the Finance Act, 1994. Accordingly, in the facts and circumstances, the penalty is set aside. - demand of Cenvat credit on the basis of contravention of Rule 6(3) of Cenvat Credit Rules. The demand of Cenvat credit availed on sale commission has to be worked out on the basis of actual credit availed by the appellant. For this purpose, the matter is remanded to the original adjudicating authority - Decided partly in favour of assesse.

Summary

Issues:
1. Demand of Rs. 18,90,324 confirmed for contravention of Rule 6(3)(C) of Cenvat Credit Rules, 2004.
2. Admissibility of Cenvat credit on commission paid for sale of XB Inspection System (XBIS).

Analysis:
1. The first issue pertains to the demand of Rs. 18,90,324 confirmed due to the utilization of Cenvat credit exceeding 20% of the tax payable, violating Rule 6(3)(C) of Cenvat Credit Rules, 2004. The appellant's services in Jammu and Kashmir were considered by the lower adjudicating authority, who concluded that the services provided in J & K were excluded from service tax levy, disallowing the benefit. However, it was argued that services to RBI prior to 31-5-2006 were billed in September 2006 with no demand for that month. The Tribunal found the demand unsustainable in these circumstances and set it aside.

2. The second issue involves a demand of Rs. 11,80,160 arising from the inadmissibility of Cenvat credit on service tax paid for commission on the sale of XB Inspection System (XBIS). The appellant contended that XBIS sales and Annual Maintenance Contract (AMC) were part of a composite contract, justifying the credit. However, the Tribunal held that the maintenance and repair services were not integral to the sale conditions. While upholding the disallowance of credit, it was noted that the exact amount of credit not availed by the appellant needed determination by the original adjudicating authority. The Tribunal also considered waiving the penalty under Section 80 of the Finance Act, 1994, due to the appellant's reasonable belief in the admissibility of credit in the sales contract and AMC scenario.

In conclusion, the Tribunal set aside the demand related to contravention of Rule 6(3) of Cenvat Credit Rules and remanded the matter regarding the Cenvat credit availed on sales commission for determination of the actual credit taken by the appellant. The penalty was waived in light of the circumstances.