2023 (3) TMI 12 - AT - Service Tax

CENVAT Credit - input services used for taxable as well as exempt service - time period within which the assessee must inform the department about exercising the option under Rule 6(3) of CCR - non-intimation of option under Rule 6(3) is at best a procedural lapse for which substantial benefit ought be denied? - whether retrospective effect can be given to the option filed by the taxpayer on 14.10.2010 under Rule 6(3)(ii) of CENVAT Credit Rules, 2004? Taxpayer has claimed that they are maintaining separate set of accounts for exempted and taxable services as per the option under Rule 6(2) of CENVAT Credit Rules, 2004, and are taking credit of only those input services used in taxable services for discharge of duty related to taxable services, they cannot simultaneously avail the option under Rule 6(3) for credit of common input services used for both exempted and taxable service. HELD THAT - The sequence of Rule 6 and the procedure and conditions stated therein, clearly bring out that the assessee can only avail the facility under Rule 6 after following the provisions of the said Rule which should be as on the date of exercising the option. Hence a harmonious reading of Rule 6(3)(ii) and Rule 6(3A) of CCR, 2004 leads to the conclusion that the intimation given to the department is effective only prospectively. It must be stated that, Rules made under the Statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act and are to be, judicially noticed for all purposes of construction or obligation. The service provider has to calculate and pay, provisionally, for every month, the amount attributable to exempted services, as per the formula given under Rule 6(3A)(b) of CCR, 2004. This is not an empty formality to term the provision as procedural. Credit taken into their books by assessee s are as good as liquid cash for the purpose of payment of duty and requires a system of checks and balances to ensure their proper and lawful utilization as per the scheme of the Act and Rules. Allowing every assessee the freedom to make the declaration whenever he chooses, even retrospectively after the statutory monthly returns are filed and then reversing credit at will to claim compliance with the Rules will lead to lack of finality in assessments, encourage attempts to evade duty and create administrative difficulties in effectively monitoring and implementing the CENVAT scheme. In the circumstances it is difficult to hold that non-compliance with the procedures and conditions of Rule 6 as non-mandatory. The Hon'ble Supreme Court while examining a similar issue, in its judgement in the case of EAGLE FLASK INDUSTRIES LIMITED VERSUS COMMISSIONER OF C. EX., PUNE 2004 (9) TMI 102 - SUPREME COURT , relating to the making of a declaration and giving an undertaking by the assessee to avail the benefit of exemption given by a notification, held that it cannot be said that these are procedural requirements, with no consequences attached for non-observance. Whether the option under Rule 6(2) and Rule 6(3) can be availed simultaneously? - HELD THAT - The matter has already been examined by this Bench in M/S. SIFY TECHNOLOGIES LTD. VERSUS COMMISSIONER OF SERVICE TAX, LTU, CHENNAI 2018 (9) TMI 317 - CESTAT CHENNAI where it was held that an assessee cannot avail of the options under Rule 6(2) and 6(3) simultaneously. The obligations under Rule 6 are in the form of various alternatives and the assessee is free to choose any option. The assessee is under no compulsion to choose one option over the other. But once having chosen a particular option he cannot avail of the other option simultaneously. Hence this question is also answered in favour of the decision of the Lower Authority in the impugned order. Whether interest or penalty are liable to be demanded from the assessee, as proportional reversal of credit has been done by them? - HELD THAT - The provisions of Rule 6 are very clear and without any ambiguity. The appellant has been suo moto taking credits even after the issue of previous show cause notices. In a few cases relating to Rule 6 of CCR 2004, orders have also been passed by the department deciding the matter, as is observed from the Appeal Memorandum filed by the appellants. The Hon ble Supreme Court in a seven Judge Bench judgement in the case of Smt. Ujjam Bai Vs State of Uttar Pradesh 1962 (4) TMI 90 - SUPREME COURT have held that the binding force of a decision which is arrived at by a taxing authority acting within the limits of the jurisdiction conferred upon it by law cannot be made dependent upon the question whether its decision is correct or erroneous. For, that would create an impossible situation - the appellant after receipt of orders from the department relating to erroneous credit taken by them as per Rule 6 of CCR 2004, cannot continue to plead ambiguity in the interpretation of the said provision and claim that having reversed wrongly taken credits, that too as per their interpretation of the Rule, the imposition of interest and penalty is unsustainable. Their plea in this regard also fails. Appeal dismissed.

Summary

Issues Involved:
1. Whether Rule 6 stipulates any time period within which the assessee must inform the department about exercising the option under Rule 6(3) of CCR.
2. Whether non-intimation of option under Rule 6(3) is at best a procedural lapse for which substantial benefit ought not to be denied.
3. Whether as per the Statute the option filed by the appellant under Rule 6(3)(ii) of CCR, 2004 is effective only prospectively.
4. Whether the option under Rule 6(2) of CENVAT Credit Rules, 2004, for credit of inputs used for payment of duty on taxable services and Rule 6(3) for credit of common input services used for both exempted and taxable service, can be availed simultaneously.
5. Whether interest or penalty is liable as proportionate reversal of credit is tantamount to non-availment of the input service credit of the common inputs.

Detailed Analysis:

1. Time Period for Intimation under Rule 6(3):
The tribunal examined whether Rule 6 stipulates any time period within which the assessee must inform the department about exercising the option under Rule 6(3). The tribunal noted that Rule 6(3A)(a) requires the manufacturer or service provider to intimate in writing to the Superintendent of Central Excise while exercising the option under Rule 6(3)(ii). This intimation must include particulars and the date from which the option is exercised or proposed to be exercised. Rule 6(3A)(v) further requires the taxpayer to declare the amount of CENVAT credit lying in balance as on the date of exercising the option. It was concluded that the intimation must be given on the date of exercising the option, making it effective only prospectively.

2. Procedural Lapse and Substantive Benefit:
The tribunal addressed whether non-intimation of option under Rule 6(3) is merely a procedural lapse. The tribunal emphasized that the procedures and conditions stated in Rule 6 are mandatory and not merely procedural. The tribunal cited the Supreme Court's judgment in M/s Eagle Flask Industries Ltd. Vs. CCE, Pune, which held that declarations and undertakings are foundational for availing benefits and cannot be considered merely procedural. The tribunal concluded that non-compliance with the procedures and conditions of Rule 6 cannot be considered non-mandatory, and thus, substantial benefits cannot be granted for procedural lapses.

3. Prospective Effectiveness of Option under Rule 6(3)(ii):
The tribunal examined whether the option filed by the appellant under Rule 6(3)(ii) of CCR, 2004 is effective only prospectively. The tribunal reaffirmed that the intimation given to the department is effective only prospectively, as per the clear reading of Rule 6(3)(ii) and Rule 6(3A) of CCR, 2004. The tribunal held that allowing retrospective declarations would lead to administrative difficulties and potential evasion of duty, thus supporting the lower authority's decision that the option is effective only prospectively.

4. Simultaneous Availment of Rule 6(2) and Rule 6(3):
The tribunal addressed whether the options under Rule 6(2) and Rule 6(3) can be availed simultaneously. It referred to a previous judgment (Final Order No. 42327/2018) which clarified that Rule 6(1) is a substantive provision prohibiting CENVAT credit on inputs used for exempted goods or services unless the conditions of Rule 6(2) are met. Rule 6(3) provides an alternative for those not maintaining separate accounts as per Rule 6(2). The tribunal concluded that an assessee cannot avail of both options concurrently, as it would defeat the purpose of the rules and lead to potential misuse of credits. The tribunal upheld the lower authority's decision that the appellant cannot simultaneously avail the benefits under Rule 6(2) and Rule 6(3).

5. Interest and Penalty on Proportionate Reversal of Credit:
The tribunal examined whether interest or penalty is liable when proportionate reversal of credit is done. The tribunal noted that the provisions of Rule 6 are clear and unambiguous. The appellant had taken credits suo moto even after previous show cause notices and orders from the department. The tribunal cited the Supreme Court's judgment in Smt. Ujjam Bai Vs State of Uttar Pradesh, which held that decisions by taxing authorities within their jurisdiction are binding, even if erroneous. The tribunal concluded that the appellant's plea of ambiguity in Rule 6 and the claim of unsustainability of interest and penalty due to proportionate reversal of credit are untenable. The tribunal upheld the imposition of interest and penalty.

Conclusion:
The tribunal dismissed the appeal, upholding the lower authority's decision on all issues. The order emphasized the mandatory nature of procedural compliance under Rule 6, the prospective effect of intimation under Rule 6(3), the prohibition on simultaneous availment of options under Rule 6(2) and Rule 6(3), and the liability for interest and penalty despite proportionate reversal of credit.