2020 (3) TMI 756 - AT - Service Tax

Reversal of CENVAT Credit - exempt services - Rule 6 (3) of CCR, 2004 - bifurcation of works contract service into two district services - HELD THAT - In the present case, there is only one transaction of Works Contract Service which is taxable service of which certain portion has been exempted. There are no distinct transactions for two services involved. In such a situation, Rule 6 doesn't become applicable, it is only one distinct service. It is not even the case of the department that the appellant was providing two different services when it is one service where exemption has been provided to certain value would not mean that the appellant was providing exempted service which otherwise is taxable. As Rule 6 (3) was not applicable, the demand made under Rule 6(3) cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand confirmed under Rule 6 (3) of CCR, 2004 for providing Works Contract Service.

Analysis:
The appellant, a registered contractor providing Works Contract Service, was asked to reverse cenvat credit under Rule 6 (3) of CCR, 2004 during an audit for the period April 2014 to March 2015. The issue arose as the service provided was considered partly exempted under Rule 2(e) of the Cenvat Credit Rules, 2004. The appellant contested that Rule 6 (3) was not applicable since they were providing only taxable services, i.e., works contract service, and not both taxable and exempted services without maintaining separate accounts. On the contrary, the department argued that 40% of the service provided was taxable, making the remaining 60% exempted, thus requiring the reversal of cenvat credit under Rule 6 (3) of CCR, 2004.

The Tribunal examined Rule 6 (3) of CCR, 2004, which applies when an assessee provides both exempted and taxable services without separate accounts for inputs/input services. It was noted that the appellant's service was solely Works Contract Service, a taxable service. The Rule is intended for distinct transactions of services, where an appellant provides two separate services, one taxable and one exempted. In this case, there was only one transaction of Works Contract Service, with a portion exempted. Since there were no distinct transactions for two services, Rule 6 was deemed inapplicable. The department did not argue that the appellant provided two different services; thus, the demand under Rule 6(3) was unsustainable.

Consequently, the Tribunal found no merit in the impugned order and set it aside, allowing the appeal with consequential relief.