2009 (2) TMI 91 - AT - Service Tax

Assessee telegraph service provider also providing some non-taxable service such as inter-connectivity services , roaming service and infrastructure use service assessee is to be held as providing certain exempted service - hence R. 6(3)(c) restricting utilization of credit for payment of service tax on output services to 20% of amount is attracted but such restriction is not applicable on capital goods credit & service tax credit in respect of 17 input services specified in R. 6(5)

Issues Involved:
1. Classification of services as "exempted services."
2. Applicability of the 20% utilization limit under Rule 6(3)(c) of the Cenvat Credit Rules, 2004.
3. Calculation of excess utilized credit.
4. Invocation of extended limitation period and imposition of penalties.

Detailed Analysis:

1. Classification of Services as "Exempted Services":
The appellant argued that providing inter-connectivity and permitting the use of infrastructure to other telephone service providers are not "exempted services" as these services were not taxable during the period of dispute. The Tribunal disagreed, stating that the definition of "exempted services" under Rule 2(e) of the Cenvat Credit Rules, 2004 includes services on which no service tax is leviable under section 66 of the Finance Act, 1994. Therefore, the services in question must be treated as "exempted services."

2. Applicability of the 20% Utilization Limit:
The appellant contended that the 20% limit on the utilization of Cenvat credit for payment of service tax on output services, as prescribed in Rule 6(3)(c), should not apply to capital goods Cenvat credit and service tax credit in respect of 17 specified services under Rule 6(5). The Tribunal agreed with this plea, citing that Rule 6(4) and Rule 6(5) allow full credit for capital goods and specified services, respectively, when used for both taxable and exempted services. The Tribunal also referenced the Board's Circular No. 137/203/2007-CX-4, which clarified that the 20% restriction does not apply to these credits.

3. Calculation of Excess Utilized Credit:
The Tribunal stated that the 20% ceiling on credit utilization should be compared only with the utilization of credit other than capital goods credit and service tax credit in respect of the 17 specified services. The Tribunal cited the case of Vijayanand Roadlines Ltd. to support the appellant's argument that the ceiling is not restricted to a monthly or quarterly basis and can be utilized at any time. Therefore, any excess utilized credit should be quantified accordingly.

4. Invocation of Extended Limitation Period and Imposition of Penalties:
The appellant argued that the extended limitation period of five years and the penalties under Rule 15(4) of the Cenvat Credit Rules, 2004 read with section 78 of the Finance Act, 1994 were wrongly invoked. The Tribunal agreed, stating that the appellant had disclosed all relevant details in their ST-3 returns and that the dispute was linked to the non-taxability of inter-connectivity charges, which was clarified by the Board's letter dated 15-6-2004. The Tribunal cited the Supreme Court cases of Chemphar Drug & Liniments and Pushpam Pharmaceuticals Co., which held that mere inaction or failure does not constitute "suppression of facts" and that the act must be deliberate. Therefore, the demand beyond the normal limitation period of one year was not sustainable, and no penalty was imposable.

Conclusion:
The Tribunal held that while the provisions of Rule 6(3)(c) of the Cenvat Credit Rules, 2004 are attracted and any wrongly utilized credit is recoverable with interest, the demands are sustainable only for the normal limitation period of one year. The matters were remanded to the Commissioner for de novo adjudication as per the Tribunal's directions. No penalties were imposed under Rule 15(4) of the Cenvat Credit Rules, 2004 read with section 78 of the Finance Act, 1994.

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