2019 (6) TMI 961 - AT - Service Tax

CENVAT Credit - input service distributor - non-reversal of proportionate cenvat credit taken against Baddi factory at Himachal Pradesh, enjoying area based exemption - Rule 6(3) of the Cenvat Credit Rules 2004 - HELD THAT - A cursory reading of Rule 6 would reveal that it deals with admissibility and non-admissibility of cenvat credit on input used in or in relation to the manufacture of exempted goods or for provision of exempted service or input service and it does not deal with manufacturer or service provider. As has been interpreted in several decisions in or in relation to is a broader concept which encompasses the entire manufacturing process or provision of services and it has not excluded input service provider (ISD) from its purview since Rule 7 also states that ISD would distribute cenvat credit in respect of service tax paid on the input service to its manufacturing units or units providing output service or outsource manufacturing units. Rule 6(5), as was existing during the relevant period, is applicable to the appellant and the benefit of the same was not extended to the appellant. Further there are three contradictory calculation sheets given in the show cause and by the lower authorities which is required to be reassessed on the basis of available records. This is a fit case which requires re-adjudication - appeal is allowed by way of remand to the Commissioner (Appeals) for re-assessment of duty liability only.

Summary

Issues:
Confirmation of duty demand, proportionate cenvat credit reversal, applicability of Rule 6(5) CCR 2004 to Input Service Distributor (ISD), interpretation of Rule 6(5) CCR 2004, calculation discrepancies in show cause notice, penalty for wrong interpretation of statute.

Confirmation of Duty Demand:
The judgment revolves around the confirmation of duty demand, interest, and penalty against the Appellant, who is an Input Service Distributor (ISD), for not reversing proportionate cenvat credit taken against the Baddi factory in Himachal Pradesh, which enjoyed area-based exemption during the relevant period. The duty demand was initially confirmed, and the Appellant appealed before the Commissioner, who re-quantified the duty demand, interest, and penalties. The Appellant challenged the order before the Tribunal.

Applicability of Rule 6(5) CCR 2004 to ISD:
The Appellant argued that Rule 6(5) of the Cenvat Credit Rules 2004 should apply to them as an ISD, allowing credit for specific services unless used exclusively for exempted goods or services. The Commissioner (Appeals) found Rule 6(5) not applicable to ISDs, stating it was meant for manufacturers or service providers, not ISDs. However, the Tribunal noted that Rule 6(5) deals with admissibility of cenvat credit on inputs used in relation to exempted goods or services, without excluding ISDs. The Tribunal held that the Rule applied to the Appellant, requiring re-adjudication based on this finding.

Interpretation of Rule 6(5) CCR 2004:
The Tribunal analyzed the interpretation of Rule 6(5) CCR 2004, emphasizing that the provision allows credit for services used unless exclusively for exempted goods/services. It noted that the Appellant's ISD arrangement aimed to distribute cenvat credit to manufacturing and service units, indicating Rule 6(5) applicability. The Tribunal found that the lower authorities had wrongly interpreted the statute, leading to discrepancies in calculations, necessitating re-assessment based on available records.

Calculation Discrepancies and Penalty:
The Tribunal highlighted discrepancies in the calculation sheets provided in the show cause notice and by the lower authorities. It emphasized the need for reassessment based on accurate records. The Tribunal concluded that penalties for the wrong interpretation of the statute would not be sustained. Therefore, the appeal was allowed, remanding the case to the Commissioner (Appeals) for re-assessment of duty liability only, requiring the Appellant's participation in the process.

This detailed analysis of the judgment provides insights into the issues of duty demand confirmation, Rule 6(5) CCR 2004 applicability to ISDs, interpretation of the rule, calculation discrepancies, and penalties for wrong interpretations, culminating in the decision to remand the case for re-assessment of duty liability.