2019 (10) TMI 539 - AT - Service Tax

CENVAT credit - restriction on utilization of credit upto 20% - taxable as well as exempt services - appellant also providing and collecting charges on non-taxable services including rental from junction links, inter-connection link charges, port charges, infrastructure charges etc. - non-maintenance of separate accounts for input services for the taxable and exempted services - Rule 6(3)(c) of CCR, 2004 - HELD THAT - It is not in dispute that the appellant has provided both taxable and exempted services and has availed CENVAT credit. The SCN alleges that they have not maintained separate accounts of inputs/input services for exempted and taxable services and hence should not have utilized CENVAT credit in excess of twenty per cent of the Service Tax payable what they did. Ld. Counsel agrees that they have not maintained separate records but asserts that the twenty per cent limit under Rule 6(3)(c) pertains only to the CENVAT credit on inputs/input services and not CENVAT credit on capital goods. The SCN has wrongly demand the total amount of CENVAT credit including that on the capital goods. It is the view of the Learned Commissioner that in the absence of any specific restriction, Rule 6(3) (c) applies to the entire CENVAT credit and not just to the CENVAT credit on inputs/input services. However, in the absence of specific details, we are unable to determine whether the appellant has exceeded the limit of twenty per cent of inputs/input services credit or not. Hence, we find that this is a fit case to be remanded to the original authority for the limited purpose of examining whether the appellant has exceeded the limit of twenty per cent of the inputs/input service credit from the relevant period - appeal allowed by way of remand.

Summary

Issues:
1. Interpretation of Rule 6(3)(c) of CCR, 2004 regarding utilization of CENVAT credit.
2. Applicability of the twenty per cent limit on CENVAT credit to inputs/input services only or also to capital goods credit.

Analysis:
1. The appeal challenged the demand for excess CENVAT credit utilization by M/s BSNL for the period March 2005 to September 2005. The issue revolved around the interpretation of Rule 6(3)(c) of CCR, 2004, which limits CENVAT credit utilization to twenty per cent of the Service Tax payable on taxable output service. The appellant argued that the restriction applies only to inputs/input services and not to capital goods credit. The CBEC Circular No.137/203/207-CX-4 clarified that certain services, akin to capital goods, do not fall under this restriction. The appellant cited relevant case laws to support their contention.

2. The Department contended that the restriction on credit utilization under Rule 6(3)(c) applies to all credits, including capital goods credit. The impugned order upheld this view, emphasizing that the restriction encompasses all credits without specific exclusions. The Bench noted that the appellant had not maintained separate records for inputs/input services used in taxable and exempted services, thereby breaching the twenty per cent limit. However, the specifics of how much credit pertained to capital goods versus inputs/input services were not provided.

3. The Tribunal acknowledged the conflicting interpretations but relied on precedent set by the Principal Bench and the Allahabad Bench of the Tribunal, which clarified that the twenty per cent restriction applies solely to inputs/input services credit and not to capital goods credit. Due to the lack of detailed information on the credit distribution, the case was remanded to the original authority for further examination. The Tribunal invoked Section 80 of the Finance Act to set aside penalties, even if a portion of the demand was upheld post-reassessment.

4. In conclusion, the Tribunal directed that if the appellant had exceeded the twenty per cent limit on inputs/input services credit, the demand would be sustained only to that extent. Interest would be payable on the upheld demand, and all penalties were set aside invoking Section 80. The decision was rendered on 15/10/2019, disposing of the appeal with the outlined directives.