2014 (10) TMI 773 - AT - Service Tax

Irregular availment of CENVAT credit - Banking and Other Financial Services - restriction on utilization of 20% of service tax - Held that - As regards demand on the ground that the appellants had utilized more than 20% of the service tax payable from CENVAT Credit account, the appellants have produced a Chartered Accountant certificate which shows the details of payments, credit, etc. It is the submission of the learned CA that in the case of Idea Cellular Ltd. 2009 (2) TMI 91 - CESTAT NEW DELHI , the Tribunal had taken a view that the restriction of 20% limit has to be calculated excluding the services which are specified in Rule 6(5) of CENVAT Credit Rules, 2004. - However while calculating, the calculation was made in a different manner which resulted in the conclusion that appellants had utilized more than 20% of CENVAT credit. Two periods were examined by us and in both the cases, we found that the amount of credit utilized by the appellants come to exactly 20%, if the claim of the appellant for method of calculation is accepted. Appellants did not make a clear claim that they had selected invoices randomly and on the basis of these certificates, all the credit taken in respect of common input services have to be treated as correct and the invoices have to be considered as ones relating to services classifiable under services listed in Rule 6(5) of CENVAT Credit Rules, 2004. In such a situation, the observation of the Commissioner that the appellants are eligible only to this extent cannot be faulted with. At the same time, we also have to take note of the fact that the audit observation was based on 1% of the samples and there is no clear finding that these are not common input services. Instead it appears that Department is attempting reclassification of the input services to arrive at this conclusion. - Matter remanded back - Decided in favour of assessee.

Summary

Issues Involved:
1. Irregular availment of CENVAT credit exceeding the 20% limit.
2. Wrong classification of services under Rule 6(5) of the CENVAT Credit Rules (CCR).
3. Invocation of the extended period due to alleged willful suppression of facts.

Detailed Analysis:

1. Irregular Availment of CENVAT Credit Exceeding the 20% Limit:
The appellant, a bank providing various financial services, was observed to have utilized CENVAT credit in excess of the 20% limit for payment of output tax during the audit period from October 2005 to March 2010. The appellant argued that the utilization should be considered over the return period of six months rather than monthly, and provided a Chartered Accountant (CA) certificate to support their claim. The Tribunal examined the CA certificate and found that the credit utilization, when calculated excluding services specified under Rule 6(5) of CCR, 2004, did not exceed the 20% limit. The Tribunal also noted that the entire demand was time-barred and that the appellant had a bona fide belief in their method of calculation. The Tribunal referenced the case of Idea Cellular Ltd. to support the appellant's interpretation and concluded that the appellant had correctly followed the law as they understood it.

2. Wrong Classification of Services under Rule 6(5) of CCR:
The second issue arose from the appellant's classification of certain services under Rule 6(5) of CCR, which allowed for 100% credit availment. The Revenue did not accept the appellant's classification for some invoices. The appellant provided CA certificates for a substantial portion of the invoices, which were accepted by the Commissioner only for those invoices verified by the CA. The Tribunal observed that the audit was based on a 1% sample and that there was no clear finding that the services were not common input services. The Tribunal decided not to remand the matter for further verification to avoid additional litigation. Considering the CA certificates covered a significant portion of the invoices, the Tribunal suggested that the appellant pay the amount due for the normal period to close the matter. The appellant agreed to this suggestion, and the Tribunal confirmed a service tax demand of Rs. 3,71,501/- and interest of Rs. 4,025/- for the normal period.

3. Invocation of Extended Period Due to Alleged Willful Suppression of Facts:
The show-cause notice issued to the appellant invoked the extended period, alleging willful suppression of facts with the intent to evade tax. The appellant contended that they acted in bona fide faith and that the provisions of penalty were not attracted. The Tribunal found that the appellant had a bona fide belief in their method of calculation and that the demand was time-barred. Consequently, the Tribunal did not uphold the invocation of the extended period for the demand.

Conclusion:
The Tribunal concluded that the appellant had correctly calculated the CENVAT credit utilization and acted in bona fide faith. The demand for the period beyond the normal limitation was set aside. For the second issue, the Tribunal confirmed the service tax demand and interest for the normal period, as agreed by the appellant, and closed the matter accordingly. The appeal was decided in these terms, with the operative portion pronounced in open court.