2019 (5) TMI 1045 - AT - Service Tax

CENVAT Credit - common input services used for providing both taxable and non taxable/ exempted services - non-maintenance of separate records - rule 6(3) of CCR - benefit of Rule 6(3) Option II - period October 09 to March 10, April 10 to September 10 October 10 to March 11 - penalty u/r 76 and 77 of FA. HELD THAT - CENVAT Credit Rules, 2004 are rules prescribing the procedure for payment to Central Excise duty/ Service Tax on the finished products/ output taxable services. These rules are self contained and provide for the mechanism to avoid tax pyramiding/ cascading effect of the tax paid on input/ input services. We do not agree with the approach of the commissioner that just because appellants had failed to comply with certain procedural requirements, the entire credit should be denied to them. The purpose of adjudication in such cases is to find out the truth and determine the actual credit that is admissible. In our view there is no doubt in respect of eligibility to taxable services received by the appellant getting qualified as input services under Rule 2(l) ibid. Applicability of Rule 6 of CENVAT Credit Rules, 2004 - major service provided by the appellant i.e. providing/ imparting education is exempted service - HELD THAT - Undisputedly appellants have not followed the procedure prescribed for availing the options provided under Rule 6(3A) of the CENVAT Credit Rules, 2004, to the extent that they have not filed any intimation to the Range Superintendent, with the prescribed particulars for availing the second option of reversal of the credit determined on proportionate basis. However appellants have claimed that during the relevant period they had reversed the CENVAT Credit attributable to exempted services. From the perusal of the various charts available the errors/ mistakes in depicting the amounts reversed while filing the ST-3 returns appear to b quite obvious. However we are not in position to verify the correction of the same. If it is factually the case of appellant that they had been reversing the credit under Rule 6(3)(ii) but had erroneously not shown the said bifurcation in the ST-3 returns, the failure of the appellants just not to claim the said option at the start of Financial Year by filing the intimation about availing the said option with the range superintendent is nothing but a procedural violation and needs to be condoned. However in case it is not so, and the appellants have not been reversing the credit in their book of account as required under Rule 6(3)(ii) then the appellants have failed to comply with the substantial requirements of the said rules. Commissioner has not recorded any findings in this regards in her order. Penalty u/r 76 and 77 of FA - HELD THAT - Since the issue is being remanded back in respect of verification of the claim that they had reversed the CENVAT Credit as required under Rule 6(3)(ii) of CENVAT Credit Rules, 2004 we are not recording any findings on the issues of imposition of penalty and interest. These issues too should be decided by the Commissioner after recording his findings after verification of ST-3. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Admissibility of CENVAT Credit on input services.
2. Compliance with Rule 6(3) Option II of the CENVAT Credit Rules, 2004.
3. Justification of penalties under Section 76 and Section 77 of the Finance Act, 1994.

Detailed Analysis:

1. Admissibility of CENVAT Credit on Input Services:

Appellants, a reputed technical institute, provided both taxable services (Technical Consultancy Services) and exempted services (education). They availed CENVAT Credit on input services used for both taxable and exempted services without maintaining separate accounts as required by Rule 6(2) of the CENVAT Credit Rules, 2004. The Show Cause Notices (SCNs) sought to deny credit for periods October 2009 to March 2011.

The Commissioner held that the input services claimed were not eligible for credit due to the failure to establish their use for providing taxable output services. The Commissioner emphasized the need for a direct nexus between input services and taxable output services, rejecting the appellants' reliance on the inclusive definition of input services under Rule 2(l).

2. Compliance with Rule 6(3) Option II of the CENVAT Credit Rules, 2004:

Appellants argued that they had reversed/paid CENVAT Credit under Rule 6(3) but had not followed the procedural requirements, such as filing intimation with the Range Superintendent. The Commissioner noted that the appellants failed to comply with Rule 6(3A), which required monthly provisional payments and final annual determinations of credit attributable to exempted services.

Despite this, the tribunal found that procedural lapses should not result in the denial of substantive benefits. The tribunal emphasized the purpose of adjudication is to determine the actual credit admissible, suggesting that non-compliance with procedural requirements should be condoned if the appellants had indeed reversed the credit as claimed.

3. Justification of Penalties under Section 76 and Section 77 of the Finance Act, 1994:

The tribunal deferred its decision on penalties and interest, directing the Commissioner to verify the appellants' claims of credit reversal. If the appellants had not reversed the credit as required, the demands and penalties should be confirmed. However, if the appellants had reversed the credit but failed to comply with procedural requirements, the penalties might be reconsidered.

Conclusion:

The tribunal remanded the matter to the Commissioner for verification of the appellants' claims regarding credit reversal. The Commissioner is to pass a speaking order after verifying the books of accounts and ST-3 returns. The tribunal directed that the adjudication should be completed within four months, adhering to principles of natural justice. The decision on penalties and interest will depend on the findings of the verification process.