2017 (11) TMI 33 - AT - Service Tax

CENVAT credit - providing of taxable as well as exempt services - non-maintenance of separate accounts for receipt, consumption and inventory of input/input services meant for used in output services as required in terms of Rule 6(2) of the CCR, 2004 - legality of the demand to disallow and recover CENVAT credit on input services exclusively used for exempted output services to the tune of ₹ 91,16,244/- - Held that - whereas appellants have claimed that they have made payment of entire amount of CENVAT credit availed irregularly and accordingly the violation of Rule 6(1) of the CCR, 2004 has been made good, the adjudicating authority has noted that there is no clarity whether the payment made by the assessee has covered all the input services which are used in exempted output services - having observed that the details given by the appellants are not clear and each transaction is required to be verified, the adjudicating authority nonetheless goes ahead to confirm the disallowance of CENVAT credit of ₹ 91,16,244/- apparently taken in excess and irregularly, without any justification for that decision. In our view, such peremptory confirmation of demand without resolving the very evident confusion in the working thereof, cannot be sustained - matter on remand. Legality of demand of ₹ 34,20,440/- for the period April 2008 to March 2010 under Rule 6(3) of CCR, 2004 - Held that - the manner of calculation of 6% or 8% on value of exempted services has not been disputed by the appellant. We also find that with effect from 01.04.2008, Rule 6(3) the CCR, 2004 was specifically amended to bring forth this method of calculation for purposes of Rule 6(3). This being the case, we do not find any infirmity in that portion of the impugned order upholding the demand of ₹ 34,20,440/-, along with interest liability thereon, for the period April 2008 to March 2010. Penalty - Held that - the entire issue has emanated out of a dispute between the appellant and the department on the method and manner of calculating the amount of CENVAT credit that can be availed in the situation where both exempted and taxable output services were provided. In these circumstances, we are of the considered opinion that imposition of penalty in this case would be a overkill - penalty set aside. Appeal allowed in part and part matter on remand.

Summary

Issues:
1. Legality of demand to disallow and recover CENVAT credit on input services used for exempted output services.
2. Legality of demand under Rule 6(3) of CCR, 2004 for a specific period.

Analysis:
Issue 1:
The case involved M/s Srivalli Shipping & Transport availing CENVAT credit on common input services used for both taxable and exempted services. The appellants were accused of not maintaining separate accounts for input services as required by Rule 6(2) of the CENVAT Credit Rules, 2004. A show cause notice was issued for recovery of allegedly excess CENVAT credit. The adjudicating authority confirmed the demands and imposed penalties. The appellant contended that by paying the entire CENVAT credit on common input services, they had satisfied the compliance of Rule 6(3). The Tribunal found discrepancies in the adjudicating authority's decision, noting lack of clarity on whether all input services used for exempted output services were covered in the payment. The Tribunal remanded the matter for further consideration, emphasizing the need for a thorough verification of each transaction.

Issue 2:
The demand of a specific amount under Rule 6(3) of CCR, 2004 for a certain period was also contested. The calculation method for the amount payable based on the value of exempted services was not disputed by the appellant. The Tribunal upheld this demand, citing the specific amendment to Rule 6(3) from 01.04.2008. However, regarding the penalties imposed by the adjudicating authority, the Tribunal deemed them excessive considering the dispute's nature and set them aside. The appeal was partly allowed, with penalties being revoked, and the matter remanded for further assessment of the credit liability for the period before 01.04.2008.

In conclusion, the Tribunal partially allowed the appeal, setting aside penalties and directing a reevaluation of the credit liability for the period before 01.04.2008. The judgment highlighted the importance of clarity and thorough verification in cases involving the disallowance of CENVAT credit on input services used for both taxable and exempted output services.