2016 (1) TMI 972 - AT - Service Tax

Cenvat Credit - demand of 8% on value of Exempted services - Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - appellants had not filed a declaration under Rule 6(3A) - It is urged that unreasonable result cannot be intended by the legislature - The appellants have already reversed the CEnvat credit of ₹ 5,06,736/- attributable to input services used in providing exempted services during the financial year 2008-09 along with the interest of ₹ 21,658/-. - Reversal was not on monthly basis. Held that - It is evident that the condition of filing the declaration is only directory and not mandatory. Further, most of the requirements under Rule 6(3A) like, name, address and registration no. of the assessee, description of taxable services and exempted services, CENVAT Credit of inputs and input services lying in balance as on the date of exercising option, are already available in the records of the Revenue. We further find it is an admitted fact that the assessee herein have calculated the CENVAT Credit in terms of clause (c) read with clause (h) and have deposited the amount so determined, by 30 th June in the succeeding financial year as prescribed. There is no dispute with regard to the CENVAT Credit reworked by the assessee which is attributable to the exempted output services. Further, there is merit in the contention of the assessee that Rule 6 cannot be used as tool of oppression to extract the amount which is much beyond the remedial measure and what cannot be collected directly, cannot be collected indirectly, as well. In case of substantive compliance made by the assessee i.e. calculation of the amount of CENVAT Credit reversible on annual basis and payment of the amount before the prescribed date, the substantial benefit cannot be denied. We also hold that in the garb of Rule 6, the provisions of Section 93 of the Finance Act, 1994 cannot be overridden and/or the exemption provided under the Section 93 of the Finance Act, 1994 cannot be negated by the Cenvat Credit Rules, which is a delegated legislation and subservient to the main Act. Demand set aside - Decided in favor of assessee.

Issues Involved:
1. Eligibility of the appellant to avail CENVAT Credit on input services used for providing exempted services.
2. Compliance with procedural requirements under Rule 6(3A) of the Cenvat Credit Rules, 2004.
3. Validity of the demand for payment of an amount equal to 8% of the value of exempted services under Rule 6(3)(i).
4. Interpretation of Rule 6(3A) as mandatory or directory.
5. Applicability of the principle of substantive compliance over procedural lapses.
6. Impact of misinterpretation of Rule 6 on the appellant's liability.

Detailed Analysis:

1. Eligibility to Avail CENVAT Credit:
The appellant provides both taxable and exempted services and avails input service credit under Rule 3 of the Cenvat Credit Rules, 2004. During April-September 2008, the appellant provided exempted services valued at Rs. 20,31,62,113/- and reversed CENVAT credit of Rs. 5,06,736/- attributable to input services used in providing exempted services for the financial year 2008-09 along with interest of Rs. 21,658/-. The appellant did not utilize the proportionate credit during the disputed period.

2. Compliance with Procedural Requirements:
A show cause notice dated 22.10.2009 was issued to recover an amount equal to 8% of the value of exempted services amounting to Rs. 1,62,52,969/- under Rule 6(3)(i) due to the appellant's failure to file a declaration under Rule 6(3A) before exercising the option under Rule 6(3)(ii). The Commissioner confirmed the demand and appropriated the amount already paid by the appellants but waived the penalty under Section 78 read with Section 80 of the Finance Act, 1994.

3. Validity of Demand under Rule 6(3)(i):
The Commissioner relied on the decision in M/s Golden Dew Tea Factory v. CCE, Coimbatore, asserting that the conditions for relief from taxation are mandatory. However, the appellant contended that the requirement of filing a declaration is procedural, not substantive, and that the necessary information was already available through other documents.

4. Interpretation of Rule 6(3A):
The appellant argued that the declaration requirement under Rule 6(3A) is directory, not mandatory. The substantive compliance of reversing the CENVAT credit attributable to exempted services was fulfilled, and procedural lapses should not result in the denial of the substantive benefit. The Tribunal agreed, stating that the intention of the legislation is to prevent undue benefit from CENVAT credit on input services used for exempted services.

5. Principle of Substantive Compliance:
The appellant cited several rulings, including CIT Vs. National Taj Traders and UOI Vs. Grasim Industries Ltd., to support the argument that procedural lapses should not negate substantive compliance. The Tribunal held that substantive compliance, such as calculating and paying the CENVAT credit attributable to exempted services, should not be denied due to minor procedural lapses.

6. Impact of Misinterpretation of Rule 6:
The Tribunal observed that Rule 6 cannot be used as a tool of oppression to extract amounts beyond remedial measures. The provisions of Section 93 of the Finance Act, 1994, which enable the Government to exempt services in public interest, cannot be overridden by the Cenvat Credit Rules. The Tribunal held that the appellant's substantive compliance with Rule 6(3)(ii) and the payment of the amount before the prescribed date should be considered sufficient.

Conclusion:
The Tribunal allowed the appellant's appeal (Appeal No. ST/419/10) and dismissed the Revenue's appeal (Appeal No. ST/92/11). The appellant is entitled to consequential benefits in accordance with the law. The Tribunal emphasized that substantive compliance should prevail over procedural lapses, and the Cenvat Credit Rules should not negate the exemptions provided under Section 93 of the Finance Act, 1994.

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