2019 (7) TMI 908 - HC - Service Tax

Reversal of CENVAT Credit - providing of taxable as well as exempt service - maintenance of separate records for providing taxable service and exempted service - procedures to be followed under the provisions of Rule 6(3) of the CCR, 2004 when failed to maintain separate records for taxable and exempted services - Rule 2(1) of Cenvat Credit Rules 2004 pertaining to input service not taken into cognizance - HELD THAT - With effect from 13.4.2016, Explanation 3 was amended specifically dealing with a situation as in the present case, where a deeming fiction was created that for the purposes of Rule 6 of the Rules, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a service as defined in section 65B(44) of the Finance Act, 1994 provided that such activity has used inputs or input services. However, there was no such stipulation prior to 13.4.2016 in law and prima facie, such situation was not to be treated as exempted service and did not attract the mischief created under rule 6 of the Rules. Therefore, for the period prior to 13.4.2016, the situation would be governed by rule 3 of the Rules for availing Cenvat Credit till such time i.e. till the time rule 6 was specifically made applicable by virtue of the deeming fiction created. As per rule 3 of the Rules, Cenvat credit of service tax paid on input services used to provide output service, is eligible. In the facts of present case, it is evident that the respondent has started taking only proportionate credit after receipt of completion certificate which was after due intimation to the revenue department and also certified by independent CA. Therefore, rule 6 of the Rules in toto cannot apply prior to 13.4.2016 to the facts of the case since sale of immovable property is not exempt service at all. Thus, in the light of the provisions of Rule 3 of the Rules, respondent cannot avail full Cenvat credit on input services received after obtaining completion certificate. Hence, the respondent cannot be expected to pay an amount equal to 8%/10% of sale price of immovable property after obtaining such completion certificate where no service tax is paid as if it is sale of immovable property since Rule 6 of the Rules perse does not apply to the present case until 13.4.2016 at all - Even after 13.4.2016, since the respondent had availed only proportionate credit, the respondent was not legally required to pay 8%/10% amount under rule 6(3) of the Rules, since it can be said to have maintained separate accounts as required under rule 6(2) of the Rules. Cenvat credit availed in respect of input service is not required to be paid back under any circumstances and therefore, the respondent was not legally required to reverse any credit which was availed by them during the period 2010 till obtaining completion certificate i.e. during the period when output service was wholly taxable in their hands, merely because later on, some portion of the property was converted into immovable property on account of receipt of completion certificate and on which no service tax would be paid in future - Tribunal therefore, rightly held that once the respondent are not required to reverse any credit availed by them on valid input services availed during the period 2010 till obtaining of completion certificate, the said amounts reversed by them under protest cannot be retained by the revenue authorities and have to be refunded to the respondent. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Admissibility of Cenvat credit under Rule 6(1) of Cenvat Credit Rules, 2004.
2. Maintenance of separate records for taxable and exempted services under Rule 6(2) and 6(3) of Cenvat Credit Rules, 2004.
3. Definition and applicability of "input service" under Rule 2(l) of Cenvat Credit Rules, 2004.
4. Refund claim of Cenvat credit reversed under protest.
5. Applicability of Rule 6 of Cenvat Credit Rules, 2004 to sale of immovable property post completion certificate.

Detailed Analysis:

1. Admissibility of Cenvat Credit under Rule 6(1):
The Tribunal considered whether the respondent was liable to reverse any portion of the Cenvat credit availed after receiving the completion certificate for the projects. The Tribunal found that the respondent was paying service tax on properties where advances were received prior to obtaining the completion certificate and availed proportionate Cenvat credit based on the square footage area. The Tribunal concluded that the respondent was justified in availing proportionate Cenvat credit, and Rule 6(1) did not necessitate a full reversal of credit.

2. Maintenance of Separate Records under Rule 6(2) and 6(3):
The Tribunal examined if the respondent maintained proper separate accounts as required under Rule 6. It was found that the respondent had maintained separate accounts by availing only proportionate credit on input services post completion certificate, supported by a CA certificate. The Tribunal concluded that this constituted sufficient compliance with the legal obligations under Rule 6(2) and 6(3).

3. Definition and Applicability of "Input Service" under Rule 2(l):
The Tribunal noted that the respondent had taken only proportionate credit after the completion certificate, which was in line with Rule 2(l) concerning "input service." The Tribunal held that the respondent's actions were legally valid and did not contravene the provisions of Rule 2(l).

4. Refund Claim of Cenvat Credit Reversed under Protest:
The Tribunal addressed the respondent's refund claim for the Cenvat credit reversed under protest. It was determined that since the respondent was not required to reverse any credit availed during the period when the output service was wholly taxable, the amounts reversed under protest could not be retained by the revenue authorities and had to be refunded.

5. Applicability of Rule 6 to Sale of Immovable Property Post Completion Certificate:
The Tribunal considered whether the sale of residential units post completion certificate amounted to providing exempted service under Rule 6. It was concluded that sale of immovable property post completion certificate is not an exempted service, and therefore, Rule 6 did not apply. The Tribunal noted that even after the amendment on 13.04.2016, the respondent had availed only proportionate credit, fulfilling the requirements of Rule 6.

Conclusion:
The Tribunal concluded that:
- The respondent was not liable to pay 8%/10% of the value of service post completion certificate under Rule 6.
- The proportionate Cenvat credit availed by the respondent was in compliance with the legal provisions.
- The respondent maintained proper separate accounts as required.
- The respondent was not required to reverse Cenvat credit availed during the period when the output service was taxable.
- The respondent was entitled to a refund of the amount paid under protest.

The appeal was dismissed, and no substantial question of law arose from the Tribunal's order.