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2020 (12) TMI 806 - AT - Service TaxReversal of CENVAT Credit - provision of exempted services and provision of taxable service - period from 2010-11 to 2013-2014 - whether appellant is required to pay 5%/6% of exempted services provided by them in terms of Rule 6(3)(i) when the appellant paid the actual credit attributed to the exempted services in terms of Rule 6(3A) along with interest following the option available under Rule 6(3)(ii)? - HELD THAT - In the present case, it is an admitted fact that the appellant did not maintain separate accounts for the input services used in or in relation to the provision of taxable service as well as exempt service. Therefore, two options were available to them, i.e., either to pay 6% of value of the exempted service or pay an amount equal to the credit attributable to the input services used in or in relation to exempt services subject to the provisions of Sub-rule (3A). When the mistake was pointed, the appellant reversed the proportionate common credit taken on input services used in the provision of exempt services. Therefore, Rule 6(3) (i) will not have any application, when a credit is taken wrongly and the same is reversed as it tantamount to nonavailment of the credit. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Reversal of CENVAT credit under Rule 6(3) of the Cenvat Credit Rules, 2004. 2. Applicability of Rule 6(3)(i) versus Rule 6(3)(ii) of the Cenvat Credit Rules, 2004. 3. Compliance with the proportional reversal method under Rule 6(3A). Issue-wise Detailed Analysis: 1. Reversal of CENVAT Credit under Rule 6(3) of the Cenvat Credit Rules, 2004: The appellant, M/s. Mould Equipment Limited, engaged in manufacturing and job work services, was required to reverse CENVAT credit amounting to ?32,40,001/- under Rule 6(3) of the Cenvat Credit Rules, 2004. This demand was based on the provision of exempted services and taxable services from 2010-11 to 2013-14. The appellant had availed CENVAT credit on inputs and input services used for both taxable and exempted services, leading to the issuance of a Show Cause Notice (SCN) by the revenue department. 2. Applicability of Rule 6(3)(i) versus Rule 6(3)(ii) of the Cenvat Credit Rules, 2004: The appellant argued that they had already reversed the total common CENVAT credit of input services by applying the proportionate ratio method as per Rule 6(3)(ii) and had reversed an amount of ?3,25,737/-. The appellant contended that the lower authority's demand of 5%/6% of the exempted turnover under Rule 6(3)(i) was unsustainable and perverse. It was emphasized that the appellant had the liberty to choose between the options provided under Rule 6(3) and had opted for Rule 6(3)(ii). The department, therefore, could not insist on applying Rule 6(3)(i). 3. Compliance with the Proportional Reversal Method under Rule 6(3A): The appellant submitted year-wise calculations and a Chartered Accountant's certificate to support their claim of proportional reversal. They argued that the demand for 5%/6% of the exempted turnover was unjustified as they had complied with the proportional reversal method under Rule 6(3A). The Tribunal noted that the appellant did not maintain separate accounts for input services used for taxable and exempt services. However, upon realizing the mistake, the appellant reversed the proportionate common credit taken on input services used in exempt services. The Tribunal referenced the case of M/s. Mercedes Benz India (P) Limited vs. Commissioner of Central Excise, Pune-I, which held that Rule 6 of the Cenvat Credit Rules is not meant to extract illegal amounts from the assessee but to ensure that CENVAT credit is not availed on inputs or input services used for exempt goods or services. Conclusion: The Tribunal concluded that Rule 6(3)(i) would not apply when a credit is wrongly taken and subsequently reversed, as it is tantamount to non-availment of the credit. The impugned order demanding ?32,40,001/- was set aside, and the appeal was allowed with consequential benefits. The Tribunal emphasized that the objective of Rule 6 is to prevent availing CENVAT credit on inputs or input services used for exempt goods or services, and any amount over and above the proportionate credit should not be recovered from the assessee.
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