2017 (5) TMI 1394 - AT - Service Tax

CENVAT credit - Rule 6(3) of the CCR, 2004 - non-maintenance of separate books of accounts for trading as well as exempted goods - Held that - The Original Authority held that the respondent is liable to follow one of the two options in terms of Rule 6(3) of CCR, 2004. The respondent followed second option and reversed the proportionate credit attributable to the exempted service, along with interest for delayed reversal of such credit - there is no reason to insist at the respondent should necessarily follow the first option of paying 6% of the value of exempted service - appeal dismissed - decided against Revenue.

Issues:
1. Liability under Rule 6(3) of the Cenvat Credit Rules, 2004 for providing taxable and exempted services.
2. Proper conclusion in the impugned order regarding the demand proposed in the show cause notice.
3. Applicability of Rule 6(3A) of the Cenvat Credit Rules, 2004 in case of annuity based insurance service.
4. Enforcement of the option for reversal of credit at the time of availing credit.

Analysis:
1. The case involved a dispute regarding the liability of the respondent, engaged in life insurance and annuity products business, under Rule 6(3) of the Cenvat Credit Rules, 2004, for providing both taxable and exempted services. The Commissioner's order required the respondent to pay 6% of the value of exempted services or reverse the proportionate credit attributable to such services. The respondent opted to reverse the credit, following which the Revenue appealed, arguing that the respondent should have exercised the option at the time of availing credit. The Tribunal noted that annuity products were considered exempted services and upheld the respondent's choice of reversing the credit, finding no merit in the Revenue's appeal.

2. The Revenue contended that the impugned order did not provide a proper conclusion to the proceedings initiated against the respondent, as it did not calculate the demand proposed in the show cause notice. The order merely reiterated legal provisions without specific calculations. The Revenue sought recovery of 6% of the value of exempted services, but the respondent chose to reverse the credit instead of paying the amount. The Tribunal observed that the respondent's action was in compliance with the impugned order, which upheld their eligibility to follow one of the options under Rule 6(3) of the Cenvat Credit Rules, 2004.

3. The respondent argued that during the relevant period, there was ambiguity regarding the status of annuity based insurance services, citing decisions by Service Tax Authorities. The impugned order considered annuity services as exempted, leading the respondent to follow the procedure of reversing the proportionate credit. The Tribunal acknowledged the respondent's adherence to the impugned order and dismissed the Revenue's objection that the option for reversal should have been exercised at the time of availing credit, emphasizing the uncertainty surrounding the status of annuity services during that period.

4. The main contention revolved around the enforcement of the option for reversal of credit at the time of availing it. The Revenue argued that the respondent should have chosen this option initially, while the respondent justified their decision to reverse the credit later based on the ambiguity surrounding the taxability of annuity services. The Tribunal upheld the respondent's choice, considering the circumstances and the directive of the impugned order, thereby dismissing the Revenue's appeal and affirming the respondent's compliance with Rule 6(3) of the Cenvat Credit Rules, 2004.

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