2008 (5) TMI 165 - AT - Service Tax

Allegation that assessee has contravened Rule 3(5) CCR by utilizing excess credit of 35% - assessee plea that if credit utilization of entire period is taken into account, there is no excess credit taken assessee s plea is acceptable - appellant has a prima facie case to justify full waiver of pre-deposit

Summary

Issues:
Dispute over utilization of service tax credit exceeding 35% of the amount of service tax payable on output service as per Rule 3(5) of Service Tax Credit Rules 2002. Applicability of restriction under Rule 3(3) when output service is not exempted from service tax. Claim of waiver of service tax on international inbound roaming service. Application of extended period of limitation due to suppression of facts. Calculation of service tax credit on monthly basis versus over a period of time.

Analysis:
The appeal revolved around the utilization of service tax credit exceeding 35% of the service tax payable on output service as per Rule 3(5) of the Service Tax Credit Rules 2002. The appellant argued that the 35% restriction under Rule 3(3) is not applicable as the output service, 'telephone service,' is not exempted from service tax. The appellant cited Notification No. 36/2007-S.T. to support the claim that waiver of tax does not amount to exemption under Rule 3(3). Additionally, it was contended that during the disputed period, there was no excess utilization of service tax credit if the entire duration was considered.

On the other hand, the Revenue contended that the service provided by the appellant was interconnected usage service, a part of the telecom service, and hence Rule 3(5) along with Rule 3(3) would apply as the service was not exempted. The Revenue argued that service tax payable on a monthly basis should not be calculated over a period of time, contrary to the appellant's assertion.

In response to the Revenue's argument, the appellant relied on a Tribunal decision that highlighted the restriction on credit utilization when separate accounts of input services for taxable and non-taxable output services are not maintained. The Tribunal decision emphasized that there is no requirement for credit accumulated during a month to be used in the same month, indicating no fixed time frame in the rules for credit utilization.

After careful consideration, the Tribunal found that the appellant had a prima facie case justifying a full waiver of pre-deposit. Consequently, the Tribunal allowed the application, waived the pre-deposit of tax and penalties, and stayed the recovery until the appeal's final disposal.