2019 (11) TMI 896 - AT - Service Tax

CENVAT Credit - input services - common input services being used exclusively for providing taxable services or were being commonly used for providing both the types of services - Revenue entertained a view that they are required to pay 10% of value of the exempted services - HELD THAT - It is well settled law that provisions of Rule 6 (3) would become invocable in case where an assessee avails the Cenvat credit on various inputs or input services which stands utilized by him commonly for providing exempted as well as taxable activities. However, if the assessee reverses the proportionate credit availed in respect of various inputs/input services, which stands utilized for exempted output activities, it has to be held as if no credit was ever availed by them in respect of such exempted activities and the provisions of Rule 6(3) become non-applicable. In the present case, the appellant had taken a categorical stand that not only the proportionate credit but the entire credit availed in respect of the said services stands reversed by them as the appellant intends to buy peace with the revenue. Primarily the allegation against the appellant, was in respect of seven services detailed in the preceding paragraphs and the appellant s plea before the adjudicating authority also revolved around the said seven services only. As such, we are in agreement with learned Counsel that the dispute should revolve only around the disputed seven services which were subject matter of the show cause notice. The fact that the entire credit availed in respect of the said seven services stands reversed by appellant, is required to be verified by the lower authority, for which purpose, we set aside the impugned order and remand the matter to the Original Adjudicating Authority for doing the needful. Appeal allowed by way of remand.

Issues:
1. Applicability of Rule 6(3) of Cenvat Credit Rules, 2004 on the appellant.
2. Contestation of proceedings on merits and limitation.
3. Commissioner's decision confirming demand, interest, and penalties.
4. Appellant's reversal of credit availed on disputed services.
5. Legal dispute regarding reversal of credit and applicability of Rule 6(3).
6. Impugned demand challenged on the grounds of limitation.
7. Arguments presented by both sides before the Tribunal.

Analysis:

1. The appellant, engaged in manufacturing and trading activities, faced proceedings initiated by the revenue for allegedly availing input service tax credit in violation of Rule 6(3) of Cenvat Credit Rules, 2004. The demand raised was approximately ?312 crores for the period from 2010 to 2015. The appellant contested the proceedings on merits and limitation, arguing that they had reversed the credit availed on disputed services and that the longer limitation period was not warranted due to the revenue's awareness of the facts.

2. The Commissioner confirmed the demand, interest, and penalties, considering that the appellant had not reversed credit on all input services and had not informed the revenue about the factual position, justifying the invocation of the extended period. The appellant challenged this decision before the Tribunal, emphasizing their reversal of credit on the disputed services and disputing the Commissioner's observations regarding other input services.

3. The Tribunal acknowledged the settled legal principle that if an assessee reverses the proportionate credit availed on inputs used for exempted activities, it is deemed as if no credit was availed for such activities, making Rule 6(3) inapplicable. The Tribunal noted that the appellant had reversed the entire credit on the disputed services to settle with the revenue, and the dispute should focus only on these services. The matter was remanded to the Original Adjudicating Authority for verification of the reversal and reconsideration of the limitation issue.

4. The legal dispute was supported by various judgments, including the Tribunal's decision in a similar case and relevant case laws. The Tribunal directed the lower authority to verify the reversal of credit on disputed services and granted the appellant the opportunity to contest their case during the reassessment. The issue of limitation was also left open for reconsideration during the remand proceedings.

5. The Tribunal disposed of the appeal in favor of the appellant, emphasizing the need for verification of the reversal of credit on disputed services and the reconsideration of the limitation issue by the Original Adjudicating Authority. The appellant was granted a fair opportunity to present their case during the reassessment process.

This comprehensive analysis covers the issues raised in the legal judgment, the arguments presented by both sides, the decision of the Commissioner, and the Tribunal's final ruling on the matter.

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