2019 (4) TMI 1915 - HC - Service Tax

CENVAT Credit - common input services used for taxable as well as exempt services - failure to maintain separate records for providing taxable service and exempted service - Section 35G of the Central Excise Act, 1944 read with Section 174(2) of the Central Goods and Services Tax Act, 2017 - HELD THAT - The availment of Cenvat credit by the respondent is absolutely legal and correct and in accordance with Rule 4(7) of the Rules. As at the time of taking credit, there was no existence of any exempted service, therefore, there is no application of Rule 6. That part of the service was exempted only after obtaining completion certificate and thereafter, the respondent was not required to avail the Cenvat credit on the input service, if any, received after obtaining the completion certificate. The respondent did not avail the Cenvat credit in respect of the services received after obtaining the completion certificate in respect of exempted service or avail proportionate credit attributed to the taxable output service. Therefore, Rule 6 has application for the period after obtaining the completion certificate. Rule 11(1), (2) and (3) of the Rules applicable to provision for manufactured goods to hold that in case of service becomes exempted at a later stage, there is no such provision in respect of the service. Once the respondent are not required to reverse any credit availed by them on valid input services availed during the period 2010 till obtaining of completion certificate, the said amounts reversed by them under protest cannot be retained by the revenue authorities and have to be refunded to the respondent. Appeal dismissed.

Summary

Issues Involved:
1. Admissibility of Cenvat credit under Rule 6(1) of Cenvat Credit Rules, 2004.
2. Maintenance of separate records for taxable and exempted services under Rule 6(2) and Rule 6(3) of Cenvat Credit Rules, 2004.
3. Definition and applicability of "input service" under Rule 2(l) of Cenvat Credit Rules, 2004.
4. Refund claim of reversed Cenvat credit.
5. Applicability of Rule 3 of Cenvat Credit Rules, 2004 for availing Cenvat credit before the completion certificate.
6. Interpretation of "exempted service" under Rule 2(e) of Cenvat Credit Rules, 2004 and Section 65B(44) of the Finance Act, 1994.

Detailed Analysis:

1. Admissibility of Cenvat Credit under Rule 6(1) of Cenvat Credit Rules, 2004:
The Tribunal considered whether the respondent was liable to reverse any portion of the Cenvat credit availed after receiving the completion certificate. The Tribunal concluded that the respondent was justified in availing proportionate Cenvat credit based on the square foot area where service tax was paid. The Tribunal held that the respondent had maintained proper records and had given due intimation to the authorities, supported by a CA certificate.

2. Maintenance of Separate Records for Taxable and Exempted Services under Rule 6(2) and Rule 6(3) of Cenvat Credit Rules, 2004:
The Tribunal found that the respondent maintained separate accounts as required under Rule 6 of the CCR, 2004. The respondent availed credit only to the extent of input services used in taxable activities on a scientific basis after obtaining the completion certificate.

3. Definition and Applicability of "Input Service" under Rule 2(l) of Cenvat Credit Rules, 2004:
The Tribunal held that the respondent's method of availing proportionate credit on input services was in compliance with Rule 3 of the CCR, 2004. The Tribunal emphasized that Rule 6 of the CCR, 2004 did not apply to the respondent's case until 13-4-2016, as the sale of immovable property was not considered an exempt service.

4. Refund Claim of Reversed Cenvat Credit:
The Tribunal concluded that the respondent was eligible to seek a refund of the amount paid under protest towards credit availed from 2010 till receipt of the completion certificate. The Tribunal reasoned that the respondent had availed credit legitimately and was not required to reverse any credit availed during the period when the output service was wholly taxable.

5. Applicability of Rule 3 of Cenvat Credit Rules, 2004 for Availing Cenvat Credit Before the Completion Certificate:
The Tribunal noted that the respondent had started taking only proportionate credit after receiving the completion certificate, which was after due intimation to the Revenue department and certified by an independent CA. Therefore, Rule 6 of the CCR, 2004 in toto could not apply prior to 13-4-2016.

6. Interpretation of "Exempted Service" under Rule 2(e) of Cenvat Credit Rules, 2004 and Section 65B(44) of the Finance Act, 1994:
The Tribunal examined the definition of "exempted service" and concluded that the sale of residential units after obtaining the completion certificate did not amount to providing an exempted service. The Tribunal held that Rule 6 of the CCR, 2004 did not apply to the respondent's case until the deeming fiction created by the amendment on 13-4-2016.

Conclusion:
The Tribunal concluded that the respondent was not liable to reverse any Cenvat credit availed during the period when the output service was wholly taxable. The Tribunal held that the amounts reversed under protest had to be refunded to the respondent. The High Court upheld the Tribunal's decision, stating that no substantial question of law arose from the impugned order. The appeal was dismissed with no order as to cost.