2018 (9) TMI 922 - AT - Service Tax

CENVAT credit - common input services used in providing both taxable and exempted services - non-maintenance of separate records - Rule 6(3) of CCR - Held that - The learned Commissioner has not appreciated the evidence put forth by the appellant regarding the maintenance of separate accounts. It is on record that in respect of each of the appeals, the appellants have produced a Chartered Accountant certificate which certifies the maintenance of accounts by the appellants. The appellants have maintained separate records and as such, there is force in the arguments made by learned counsel for the appellant-assessee. However, on going through the summary submitted by the counsel for the appellants, we find that there is an amount of ₹ 29,24,565/- which remains to be reversed by them. Appeal allowed in part.

Issues Involved:
1. Violation of Rule 6(1) of CENVAT Credit Rules.
2. Maintenance of separate accounts as per Rule 6(2) and 6(3) of CENVAT Credit Rules.
3. Reversal of CENVAT credit for exempted services.
4. Verification and acceptance of evidence regarding maintenance of separate accounts.

Detailed Analysis:

1. Violation of Rule 6(1) of CENVAT Credit Rules:
The Department contended that the appellants violated Rule 6(1) of the CENVAT Credit Rules by availing CENVAT credit on input services used for both taxable and exempted services without maintaining separate accounts. Rule 6(1) stipulates that CENVAT credit shall not be allowed on inputs used in exempted services unless conditions in Rule 6(2) are met.

2. Maintenance of Separate Accounts as per Rule 6(2) and 6(3) of CENVAT Credit Rules:
The appellants argued they maintained separate records for taxable and exempted services, complying with Rule 6(2). They provided a detailed accounting system categorizing input services for taxable services, exempted services, and services used for both, with proportionate credit availed based on turnover ratios. The appellants submitted Chartered Accountant certificates and internal guidelines to substantiate their claim.

The Department issued multiple show-cause notices for different periods (2006-07 to 2011-12), alleging non-maintenance of separate records. The Commissioner confirmed these notices except for one, where verification confirmed compliance.

3. Reversal of CENVAT Credit for Exempted Services:
The appellants contended they reversed credit at the end of each month for input services used in exempted services, citing the Supreme Court's ruling in Chandrapur Magnet Wires Pvt. Ltd., which equates credit reversal to non-availment of credit. They argued that this practice complied with Rule 6(3), which allows for such reversals instead of maintaining separate accounts.

4. Verification and Acceptance of Evidence Regarding Maintenance of Separate Accounts:
The Tribunal noted that the Commissioner failed to appreciate the evidence provided by the appellants, including Chartered Accountant certificates and internal guidelines. The Commissioner verified and accepted the maintenance of separate accounts for one show-cause notice but did not conduct similar inquiries for others.

The Tribunal emphasized that the appellants, being a large entity, maintained detailed records for internal purposes, which should be accepted as compliance with CENVAT Credit Rules. The Tribunal found that the appellants maintained separate records and made necessary reversals, supported by Chartered Accountant certificates.

Conclusion:
The Tribunal concluded that the appellants maintained separate records as required and reversed credit for exempted services. However, an amount of ?29,24,565/- remained to be reversed, which the appellants were directed to pay along with interest. The Tribunal allowed the appellants' appeals subject to this payment and rejected the Department's appeal.

(Order pronounced in Open Court on 14.09.2018.)

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