2020 (10) TMI 198 - AT - Service Tax

CENVAT Credit - exempt services or not - Storage and Warehousing Service, Cargo Handling Service and Business Auxiliary Service in respect of agricultural produces - common input services used in taxable as well as exempt goods - HELD THAT - It is a matter of record that the appellant have been providing both taxable and exempted output services in respect of which they have been availing credit of common input services. It is also a matter of record that the appellant have fulfilled the requirement of Rule 6 (3) (ii) of the Cenvat Credit Rules, 2004 readwith Rule 6 (3A) and have been reversing the amount of common Cenvat credits, proportionate to value of exempted output services. In this regard we take note of the fact that appellant have furnished Cenvat credit register for the period April 2009 to June 2012 which indicate that they have regularly been reversing the proportionate amount of the Cenvat credit taken on the common inputs which have gone into exempted output services. Once the appropriate reversal have been made under Rule 6 (3A) of the Cenvat Credit Rules any procedural violations of minor nature would be of in-consequential nature and will not dis-entitle the assessee from availing the Cenvat credit of the common inputs for which they have already been making a regular reversal of proportionate credits - the Department has nowhere mentioned in entire proceedings that the amount of Cenvat credit reversed is not proportionate to the value of exempted services or not proper otherwise. The only ground that the appellant have not followed the laid down procedure of availing the option of Rule 6 (3A) like not declaring value of turnover of exempted services in their periodic service tax return etc. can be minor procedural lapses, but same cannot become ground for denying a substantial benefit to the appellant. Once the proportionate reversal of the Cenvat credit has taken place, that tantamount to not availing of the input services credit of the common inputs which are going into the exempted services - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Reversal of Cenvat credit on input services for exempted services.
2. Failure to maintain separate records as per Cenvat Credit Rules.
3. Demand of service tax, interest, and penalties.
4. Applicability of Rule 6 (3A) of Cenvat Credit Rules, 2004.
5. Procedural lapses and denial of Cenvat credit benefits.
6. Invocation of willful suppression and extended period of limitation.
7. Interpretation of the proportionate reversal of Cenvat credit.
8. Compliance with Rule 6 (3) and Rule 6 (3A) of Cenvat Credit Rules.

Analysis:
1. The appellant provided both taxable and exempted services, leading to a demand for reversal of Cenvat credit on common inputs used for exempted services. The Department issued a show cause notice demanding the reversal of Cenvat credit and imposed penalties under Rule 14 of Cenvat Credit Rules, 2004 and Section 73 (1) of the Finance Act, 1994.

2. The appellant argued that they reversed the proportionate Cenvat credit as per Rule 6 (3A) of Cenvat Credit Rules, 2004 and submitted necessary declarations. They contended that the turnover figures of exempted services were not filed due to ignorance, but the reversal of Cenvat credit had been done correctly.

3. The appellant emphasized that any procedural lapses should not deny them the benefit of Cenvat credit. They argued that the demand for Cenvat credit should not exceed the amount availed, especially when the proportionate credits for exempted services had already been reversed.

4. The appellant disputed the imposition of penalties, claiming no willful suppression or intention to evade payment. They cited precedents and the Supreme Court decision in Chandrapur Magnets Pvt. Ltd. to support their argument that once Cenvat credit is reversed, it is as if no credit was availed.

5. The Tribunal noted that the appellant had complied with Rule 6 (3A) by regularly reversing the proportionate Cenvat credit for exempted services. Minor procedural violations were deemed inconsequential, and the Department did not dispute the correctness of the credit reversals.

6. Relying on the Supreme Court decision in Chandrapur Magnet Wires (P) Ltd., the Tribunal held that the reversal of Cenvat credit for exempted services equated to non-availment of input services credit. Precedents like M/s The Oberoi Rajvilas were cited to support the view that proportionate reversal satisfied the requirements.

7. Ultimately, the Tribunal found no merit in the order-in-original and set it aside, allowing the appeal based on the appellant's compliance with Rule 6 (3A) and the proportionate reversal of Cenvat credit. The decision was pronounced in open court, overturning the penalties and demands imposed by the Department.