2015 (11) TMI 50 - AT - Service Tax

Credit availed on exempted services - interest earned by the bank on loans and advances, whether it is exempted service or taxable service - Revenue contends that appellant has not complied with the requirements of Rule 6(3) (ii) and Rule (3A) of Rules, 6 thus liable to pay amount @ 8% of value of exempted goods and he should have paid CENVAT credit amount along with 24% interest - Demand raised under Rule 6(3)(i)is sustainable. Held That - Board has clarified that prior to 17/3/2012 the value of interest was not be relevant for the reversal of credit under Rule 6(3) of Cenvat credit Rules. Moreover for the banking and financial institution under Rule 6(3) (D) the provision was available for straight 50% reversal of interest. In the present case the disputed value is of interest and Cenvat credit up to 50% of credit was required to be reversed Since appellant paid entire service tax credit availed by them alongwith interest @ 24% he could not be asked to pay 8% of interest amount in terms of Rule 6(3)(ii)and procedure as prescribed under sub rule (3A) of Rule 6 is not relevant because it is relevant only when appellant undertake to pay proportionate credit attributable to exempted service - Demand raised under Rule 6(3)(i) is not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Applicability of Rule 6(3)(i) of Cenvat Credit Rules, 2004 on a Cooperative Bank availing Cenvat credit for common input services.
2. Whether interest on loans was exempted services during the relevant period.
3. Compliance with the procedure for maintaining separate accounts under Rule 6 of Cenvat Credit Rules.
4. Effect of retrospective amendment under Section 73 of Finance Act, 2010 on the demand raised under Rule 6(3)(i) of Cenvat Credit Rules.

Issue 1:
The appeal challenged the demand of Rs. 32,10,030/- under Rule 6(3)(i) of Cenvat Credit Rules, 2004, imposed on a Cooperative Bank for availing Cenvat credit on common input services used in both taxable and exempted services. The appellant contended that interest on loans was not exempted services during the relevant period, citing Board Circular No. 334/1/2012-TRU, and argued that the entire service tax credit had been reversed along with interest, rendering Rule 6(3) inapplicable. The appellant also highlighted the retrospective amendment under Section 73 of Finance Act, 2010, which required payment equal to Cenvat credit attributable to exempted services along with 24% interest.

Issue 2:
The question of whether interest on loans was exempted services during the relevant period was crucial. The Tribunal analyzed Board Circular DOI No. 334/1/2012/TRU and Amendment Notification No. 11/2012-ST, determining that interest on loans was excluded from the taxable value before 17/3/2012 but became explicitly exempted thereafter. As the appellant had paid the entire service tax credit along with interest, even the provisions under Rule 6(3) did not necessitate further payment. The Tribunal noted that the appellant's case aligned with the retrospective amendment requirements, as they had paid the stipulated amount of Cenvat credit along with 24% interest.

Issue 3:
Regarding compliance with the procedure for maintaining separate accounts under Rule 6 of Cenvat Credit Rules, the Tribunal observed that the appellant's payment of the entire service tax credit along with interest obviated the need for adherence to the procedure specified under sub-rule (3A) of Rule 6. The Tribunal emphasized that the procedure was relevant only when the appellant opted to pay proportionate credit attributable to exempted services, which was not the case here.

Issue 4:
The impact of the retrospective amendment under Section 73 of Finance Act, 2010 on the demand raised under Rule 6(3)(i) of Cenvat Credit Rules was significant. The Tribunal found that the appellant's compliance with the payment requirements of the retrospective amendment, including the 24% interest, aligned with the amendment's intent. The Tribunal distinguished the case law cited by the Revenue, emphasizing that the circumstances and legal provisions differed in the present case, leading to the conclusion that the demand raised under Rule 6(3)(i) was unsustainable.

This detailed analysis of the legal judgment addresses all the issues involved comprehensively, focusing on the applicability of Rule 6(3)(i) of Cenvat Credit Rules, the status of interest on loans as exempted services, compliance with procedural requirements, and the impact of the retrospective amendment on the demand raised.