2022 (9) TMI 130 - AT - Service Tax

Reversal of CENVAT Credit - inputs - input services - common services used for both taxable and exempted services rendered by the appellant - receipt of interest in the course of rendering service that is not liable to tax - non-maintenance of separate records - rule 3 of CENVAT Credit Rules, 2004 - HELD THAT - The lower authorities had not considered the manner in which the reversal was to be handled as per rule 6 of CENVAT Credit Rules, 2004 and that exempted services , as defined in rule 2 of CENVAT Credit Rules, 2004, should have been the basis for determining the ineligibility for continued maintenance of the credit availed. In the absence of details of credit taken during the disputed period and utilized, we are unable to come to conclusion of the reversal, if any, required under the CENVAT Credit Rules, 2004. It would, therefore, be appropriate for the notice to be decided afresh by the original authority - matter remanded back to the original authority to consider the submissions of the assessee.

Summary

Issues:
- Availment of CENVAT credit on 'inputs' and 'input services' used for both taxable and exempted services
- Interpretation of rule 6 of CENVAT Credit Rules, 2004
- Applicability of notification no. 29/2004-ST dated 22nd September 2004 on credit availment
- Challenge to recovery of short-paid tax, interest, and penalties
- Consideration of 'interest' as exempted service
- Compliance with rule 6 of CENVAT Credit Rules, 2004
- Discrepancies in the lower authorities' decision on reversal of credit
- Necessity for fresh consideration by the original authority

Analysis:
The case involves M/s Tirupati Co-op Bank Ltd appealing against the confirmation of short-paid tax, recovery amounts, and penalties imposed under section 73 of Finance Act, 1994. The dispute revolves around the availment of CENVAT credit on 'inputs' and 'input services' utilized for both taxable and exempted services. The key issue is the continued retention of credit upon utilization, allegedly breaching rule 6 of CENVAT Credit Rules, 2004.

Two show cause notices were adjudicated upon, addressing the changes in rule 6 of CENVAT Credit Rules, 2004, post-April 2008. The tax authorities argued that certain services, including 'interest,' precluded the availment of credit due to their exemption under notification no. 29/2004-ST. The lower authorities found discrepancies in the appellant's utilization of credit, leading to the ordered recoveries for different periods.

The appellant's Chartered Accountant argued that 'interest' became exempted only post a specific notification, citing relevant Tribunal decisions. The challenge to the extended period and penalties under section 76 and section 78 of Finance Act, 1994, was based on previous Tribunal rulings.

The Authorized Representative contended that the appellant's failure to maintain separate accounts for taxable and exempted services necessitated the recovery ordered by lower authorities. The Tribunal found the proceedings centered on 'interest' as consideration for an exempted service, requiring the appellant to pay a percentage on the value of such service for specific periods.

The Tribunal observed that the lower authorities did not consider the correct handling of reversals under rule 6 of CENVAT Credit Rules, 2004. Due to insufficient details on credit utilization during the disputed period, the matter was remanded back to the original authority for a fresh decision, considering judicial decisions and factual submissions related to credit availment.