2019 (11) TMI 61 - AT - Service Tax

CENVAT Credit - common input services, used for providing the taxable output services and for the exempted service - Non-maintenance of separate records - sub-rule (3) of Rule 6 of CCR - HELD THAT - The fact is not under dispute that the appellant had reversed an amount of ₹ 2,66,487/- and also paid interest amounting to ₹ 1,47,059/- in respect of the irregular cenvat credit availed for the services provided by M/s. Prithvi Caf at Juhu - Since the appellant had reversed the cenvat credit and also paid interest before issuance of show cause notice, such reversal of credit should be construed as non-availment of cenvat credit and in such eventuality, the restrictions contained in Rule 6 ibid would not be applicable. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Availment of cenvat credit on common input services for both taxable and exempted services.
2. Applicability of Rule 6 of the Finance Act, 1994 regarding recovery of disputed cenvat credit.
3. Impact of reversal of cenvat credit and payment of interest before the issuance of show cause notice on the applicability of Rule 6.

Analysis:

Issue 1: Availment of cenvat credit on common input services
The appellant, engaged in providing taxable and exempted services, availed cenvat credit on common input services used for both types of services. The department disputed this availment, citing sub-rule (3) of Rule 6 of the Finance Act, 1994. The appellant argued that for the exempted service provided at M/s. Prithvi Café, the cenvat credit was reversed, and interest was paid on delayed reversal. This action, according to the appellant, should exempt them from the provisions of Rule 6 for recovery of the disputed demand.

Issue 2: Applicability of Rule 6 for recovery of disputed cenvat credit
The Tribunal considered the reversal of cenvat credit and payment of interest amounting to ?2,66,487/- and ?1,47,059/- respectively by the appellant before the show cause notice was issued. Citing the Supreme Court's decision in Chandrapur Magnet Wires (P) Ltd. vs. CCE, Nagpur, the Tribunal held that when ineligible credit is reversed before notice issuance, it should be treated as non-availment of credit. Consequently, the restrictions under Rule 6 should not apply. Although the Supreme Court's decision was related to the Modvat regime, the Tribunal found its principle applicable to the present cenvat issue.

Issue 3: Impact of reversal of cenvat credit on applicability of Rule 6
Based on the above analysis, the Tribunal concluded that the impugned order by the Commissioner (Appeals) lacked merit. Therefore, the appeal filed by the appellant was allowed. The Tribunal's decision was based on the understanding that the reversal of cenvat credit and payment of interest before the show cause notice exempted the appellant from the provisions of Rule 6, leading to the allowance of the appeal.

This detailed analysis of the judgment highlights the key issues of cenvat credit availment, the application of Rule 6, and the impact of timely reversal of credit on the legal outcome of the case.