2017 (5) TMI 192 - AT - Service Tax

Recovery of CENVAT credit - service provided in the State of Jammu and Kashmir - According to the impugned order, they were, in the circumstances of exclusion, permitted to discharge only 20% of the taxability by recourse to CENVAT credit for the period from 2006-07 to 2007-08 and the excess credit utilised was sought to be recovered - contention of assessee was that tax that was not leviable cannot be subject to circumscribing provisions of the tax laws and, even if it does, should not impinge upon the benefits of legislation flowing to assessees. Held that - As the Finance Act, 1994 does not extend to State of Jammu and Kashmir, output services provided there are not subject to tax. However, in the matter of rendering such service, it is moot whether the provision of services to the excluded territory required additional use of input/input services. Nor is it the case of the tax authorities that the scale of services rendered in the rest of India could have been achieved by isolating a portion of the inputs/input services as attributable to services rendered in the State of Jammu and Kashmir. In such a situation, there is no logic or soundness to hold that the inputs/input services used for rendering broadcasting service should be restricted to such as evidenced to have been used for rendering service in the rest of India. In these circumstances the availment the CENVAT credit to the full extent cannot be questioned. It s utilisation thereof cannot also be restricted. As the entire quantum of input services would be required to provide the taxable service, the scope for delineating that pertaining to the exempt service cannot be said to exist. Legislative intent would appear to have been targeted at precluding the utilisation of CENVAT credit that would not be available had the assessee restricted itself to taxable output services. There is no justification for invocation of rule 6(3) of CCR, 2004 to disallow any portion of the availed credit - appeal allowed - decided in favor of assessee.

Summary

Issues:
Disallowance of CENVAT credit, recovery with interest, and penalty under section 78 of Finance Act, 1994 for failure to maintain separate records for taxable and exempted services, applicability of rule 6(3) of CENVAT Credit Rules, 2004, contention regarding tax liability in relation to services rendered in the State of Jammu and Kashmir, claim of demand being hit by the bar of limitation, invocation of extended period and penalty under section 78 of Finance Act, 1994, interpretation of the term "exempted service" in CENVAT Credit Rules 2004, distinction between taxable and exempt services, relevance of maintaining separate accounts for input services, utilization of CENVAT credit for services rendered in the State of Jammu and Kashmir.

Analysis:
The judgment by the Appellate Tribunal CESTAT Mumbai dealt with the challenge raised by M/s Reliance Media World Ltd against the disallowance of CENVAT credit, recovery with interest, and penalty imposed under section 78 of the Finance Act, 1994. The dispute arose from the failure to maintain separate records for taxable and exempted services, particularly in relation to services provided in the State of Jammu and Kashmir. The appellant contended that the tax liability did not arise in Jammu and Kashmir, and thus, the restrictive provisions of rule 6(3) of CENVAT Credit Rules, 2004 should not apply. The appellant also argued that the demand was barred by limitation. The tribunal analyzed the provisions of rule 6(3) and distinguished between exempted and non-taxable services, emphasizing the need for maintaining separate accounts for exempted services. The appellant relied on legal precedents to support their interpretation of the taxation statutes, advocating for a strict construction and benefit of doubt to the assessee.

The tribunal further considered the absence of willful misrepresentation or tax evasion by the appellant, questioning the invocation of the extended period and penalty under section 78 of the Finance Act, 1994. The judgment referenced previous rulings to support the contention that there is no restriction on the availment of credit based on inputs/input services. The tribunal also examined the definition of "exempted service" in the CENVAT Credit Rules 2004 and the necessity of maintaining separate accounts for input services used in providing output services. The tribunal highlighted the legislative intent behind the CENVAT Credit Rules, emphasizing the objective of preventing the burden of taxation cascading through the supply chain.

Ultimately, the tribunal concluded that in the specific circumstances of the case, there was no justification for invoking rule 6(3) of the CENVAT Credit Rules, 2004 to disallow any portion of the availed credit. Therefore, the recovery was deemed to fail, and the appeal was allowed, setting aside the impugned order. The cross-objection was also disposed of in favor of the appellant. The judgment provided a detailed analysis of the issues related to CENVAT credit, tax liability in specific territories, interpretation of tax laws, and the application of relevant legal provisions in the case at hand.