2018 (5) TMI 1421 - AT - Service Tax

CENVAT credit - input services - Maintenance and Repair Service - On line Information - Commercial Training or Coaching Service - Scientific and Technical Consultancy Service - Erection, Commissioning and Installation Service - Consultancy Services - Held that - the Revenue has not brought on record any ground to allege that the credit availed is in respect of ineligible input services. In the absence of any such ground, the CENVAT credit availed cannot be denied to the appellant. The circumstances in which the cenvat credit availed can be restricted or reversed is also specifically spelt out in the Cenvat Credit Rules, 2004. The restriction/ reversal of cenvat credit on the basis of the thumb rule / formula adopted by the Revenue has no legal basis. Once the cenvat credit has been availed in respect of input services falling under Rule 2(l) the same cannot be disallowed by taking recourse to any thumb Rule or formula. With effect from 01.04.2016 in Rule 6(l) of the Cenvat Credit Rules stand amended by including Explanation (iii) but such amendment cannot be extended to the prior period. Appeal disposed off.

Summary

Issues:
Dispute over irregular availing of cenvat credit under Cenvat Credit Rules, 2004 by the appellant leading to disallowance of credit amounting to ?4.42 crores, alleged suppression of facts, and imposition of penalties.

Analysis:
1. The dispute in this case revolves around the appellant's availing of cenvat credit under Cenvat Credit Rules, 2004 during the period October 2007 to December 2012. The Department alleged irregular availing of Service Tax by the appellant, primarily focusing on the disproportionate cenvat credit accumulation in relation to the total service tax liability. The Revenue adopted a formula to restrict the cenvat credit based on the ratio of total output service value to total expenditure, which was challenged by the appellant as lacking statutory backing.

2. The appellant argued that the cenvat credit availed pertained to various input services, including those under reverse charge mechanism, and were in compliance with Section 2(l) of the Cenvat Credit Rules, 2004. They contended that services provided to other units of ONGC were not subject to service tax as they were considered exempt services until April 2016. The appellant also emphasized that the Revenue's formula for restricting cenvat credit lacked legal basis and that the Department failed to prove any ineligible input services availed by the appellant.

3. The Tribunal examined the relevant legal provisions, including Rule 2(l) of the Cenvat Credit Rules, 2004, which defines input services allowable for cenvat credit. It was noted that the Revenue did not establish any grounds to disallow the cenvat credit availed by the appellant. The Tribunal emphasized that once cenvat credit is availed for eligible input services, it cannot be denied based on a formula or thumb rule, as specified under the Cenvat Credit Rules, 2004.

4. The adjudicating authority had justified the restriction of cenvat credit based on the appellant's services to other ONGC Divisions, which were considered as services to self and not subject to service tax. However, the Tribunal disagreed with this reasoning, stating that the levy of Service Tax on such internal services was not justified. The Tribunal also clarified that the amendment in Rule 6(l) of the Cenvat Credit Rules, effective from April 2016, could not be applied retrospectively to the prior period under dispute.

5. Ultimately, the Tribunal set aside the impugned order except for the demand admitted by the appellant during the proceedings. The appeal was disposed of in favor of the appellant, emphasizing the legal entitlement to cenvat credit for eligible input services and rejecting the Revenue's formula-based restriction on cenvat credit.

This detailed analysis of the judgment highlights the key legal arguments, interpretations of relevant provisions, and the Tribunal's decision on the issues raised in the case.