2018 (1) TMI 1089 - AT - Service Tax

CENVAT credit - exempt services - Rule 6(3)(ii) of the Cenvat Credit Rules, 2004 - dispute in the present appeal relates to the application of Rule 6 of the Rules to the effect that the assessee-Appellants should maintain separate accounts for usage of credit availed input services for taxable output services and exempted output services - Held that - reversal of credit amount attributable to exempted services, in any case, is to be confirmed by verification of documents. The claim made by the assessee-Appellants requires verification by the original authority - appeal allowed by way of remand.

Summary

Issues:
Application of Rule 6 of the Cenvat Credit Rules, 2004 regarding maintaining separate accounts for input services used in taxable and exempted output services.

Analysis:
The appeal was filed against the Order-in-Original passed by the Commissioner of Central Excise (Appeals), Jaipur, for the period from April 2007 to March 2008. The dispute centered around the application of Rule 6 of the Cenvat Credit Rules, 2004, which required maintaining separate accounts for input services used in taxable and exempted output services. The assessee had availed Cenvat Credit on input services common to both types of output services without segregating them. Consequently, proceedings were initiated to demand 8% of the value of exempted services under Rule 6(3)(ii). The original authority upheld the demand and imposed penalties.

During the hearing, the counsel for the assessee acknowledged the non-compliance with Rule 6 but highlighted that upon being informed, the assessee reversed the credit availed on input services attributable to exempted output services, as required by the rule. The counsel referred to legal precedents, including decisions by the Hon'ble Supreme Court and High Courts, to support the contention that the reversal of credit with interest amounted to non-availing of Cenvat credit to that extent. The Department, however, contended that separate accounts should have been maintained from the outset.

After considering the arguments and reviewing the facts, the Tribunal noted that the assessee had indeed reversed the credit with interest for input services used in exempted output services. The Tribunal observed that this issue had been addressed in previous cases, and the reversal of credit needed verification by the original authority. Following the precedents set by the Hon'ble Supreme Court and High Courts, and recent Tribunal decisions, the demand for 8% of the value of exempted services was deemed unjustified. Therefore, the appeal was allowed, subject to verification of the credit reversal in line with legal principles and precedents cited.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the importance of complying with Rule 6 of the Cenvat Credit Rules, 2004, and the necessity for proper verification of credit reversals in line with established legal interpretations.