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2023 (3) TMI 131 - AT - Service TaxShort/non payment of service tax - taxability of Service provided to SEZ - CENVAT Credit - input services used for taxable as well as exempt services - Cenvat credit on the inputs and input services used in or in relation to rendering of output services to a unit in SEZ or to a SEZ developer - suppression of facts or not - extended period of limitation. Short/non-payment of service tax - HELD THAT - As per revenue, appellant has utilized 100% of credit taken instead only 20% as was prevalent during the relevant period in terms of Rule6(3)(c) of CCR, 2004. It is true that during the relevant period only 20% of credit could be utilized but there are force in the argument of the appellant that they were not barred from taking credit but were only barred from utilizing it - The excess utilized credit cannot be demanded, as Rule6(3)(c) is silent with regard to the period during which the 20% credit shall be utilized and in this regard Tribunal in case of VIJAYANAND ROADLINES LTD. VERSUS COMMISSIONER OF C. EX., BELGAUM 2006 (12) TMI 56 - CESTAT,BANGALORE , with reference to Rule 3(5) of the Service Tax Credit Rules, 2002, which is pari materia with Rule6(3)(c) of the Cenvat Credit Rules, 2004, has held that the utilization is not restricted to monthly or quarterly basis and that it can be utilized at any time - in the present matter the demand of service tax on this ground does not sustain. As several years have passed, the appellant would have been entitled to utilize the credit subsequent to the period in question and therefore the demand on this ground is not sustainable. Reversal of CENVAT Credit - Appellant has provided taxable services to their clients in the State of Jammu Kashmir, without maintaining separate account of receipts, consumption use of Cenvat Credit - HELD THAT - The provisions of Rule 6 of Cenvat Credit Rules comes into application when the manufacturer/service provider avails credit on inputs/input services used for manufacture of final products or providing output service which are chargeable to duty/tax as well as exempted goods/exempted services. The proviso to sub-clause (2) of Rule 1 of Cenvat Credit Rules states that nothing contained in these rules relating to availment and utilization of credit of service tax shall apply to the State of Jammu and Kashmir . Again, as per Section 64 of the Finance Act, 1994, the Act extends to the whole of India except the State of Jammu Kashmir. Thus, there is no levy of service tax on the services provided in Jammu Kashmir. The Department has construed the services rendered in Jammu Kashmir to be exempted service - Since the service provided to the state of J K are not liable to service tax, as Section 64 of Chapter V of Finance Act, 1994 excludes the applicability of service tax to the state of Jammu and Kashmir, these services are neither taxable nor exempted. The services provided to non-taxable territory cannot be considered as exempted service. Services provide by the Appellant to the SEZ units - HELD THAT - There is no dispute as to the fact that the appellant had provided services to SEZ units. However on perusal of the retrospective amendment as has been brought in by Finance Act, 2012 by Section 144, it is found that the Central Government has categorically stated that if any services are rendered to a unit situated in SEZ, the said services cannot be termed as exempted services - Section 144 of the Finance Act, 2012, the amendment was given retrospective effect from 10-2-2006 to 20-2-2011. In other words, during the impugned period, there was no need for the assessee to reverse any credit taken on the inputs/input services in respect of which credit was availed for rendering of output services to SEZ units/SEZ developer - the demand of service tax confirmed by the impugned order is not sustainable in law. Cenvat credit on the inputs and input services used in or in relation to rendering of output services to a unit in SEZ or to a SEZ developer - HELD THAT - The appellant is rightly entitled to Cenvat credit on the inputs and input services used in or in relation to rendering of output services to a unit in SEZ or to a SEZ developer. It is to be noticed that when the supply of service to SEZ is treated as export, it is necessarily in the context of supply by the DTA units and to extend all the benefits available in respect of export. In other words, the units supplying service from DTA are the exporters and the service supplied by the DTA units are the export service . Therefore, the definition of export in the SEZ Act should be applicable in respect of supplies made by DTA units to the SEZ units. Otherwise the said definition becomes redundant - in view of the overriding effect of Section 51 of the SEZ Act, the service supplies made by DTA units to SEZ units will amount to export for the purpose of all export benefits. The benefit shall include benefits available in respect of exports provided by exception to Rule 6 of Cenvat Credit Rules. Time limitation - no suppression of facts - HELD THAT - There is no findings during investigation that the appellant was intentionally availing and utilizing Cenvat credit with mala fide intention. Based upon interpretation of the provisions of the Finance Act, 1994 and Cenvat Credit Rules, 2004 they bonafidely believed that they are entitled for the Cenvat credit and they correctly utilized the cenvat credit. In order to invoke the extended period, there should be suppression or willful misstatement with intention to evade payments of tax. The issue involved is of interpretation wherein the department is of the view that the appellant is not eligible for credit and they were liable to maintain separate accounts in order to avail credit when input services were common or non-entitlement when the services were exclusively used in exempted service. Whereas, the appellant were under the belief that the activities not being covered under exempted service, the credit is eligible even if service provided to SEZ units and clients of Jammu Kashmir. It is on record that appellant are regularly paying the service tax. On such ground also there is nothing to establish suppression or willful misstatement with intention to evade payment of duty on the part of appellant - demands raised against the appellant by invoking extended period is not sustainable and is time barred. Appeal allowed.
Issues Involved:
1. Utilization of Cenvat Credit beyond permissible limits. 2. Provision of services in Jammu & Kashmir. 3. Provision of services to Special Economic Zones (SEZ). 4. Revenue neutrality of transactions. 5. Time-barred demand. Detailed Analysis: 1. Utilization of Cenvat Credit beyond permissible limits: The appellant was accused of utilizing Cenvat Credit beyond the permissible limit of 20% of the service tax payable on taxable output services, as stipulated in Rule 6(3)(c) of the Cenvat Credit Rules, 2004. The appellant argued that they were not barred from taking credit but only from utilizing it beyond the specified limit in a given period. The Tribunal found merit in the appellant's argument, citing the precedent set in *Vijayanand Roadlines Ltd. v. CCE, Belgaum* (2007 (7) S.T.R. 219 (Tri.-Bang.)), which held that the utilization of credit is not restricted to a monthly or quarterly basis and can be utilized at any time. Consequently, the demand for service tax on this ground was not sustainable. 2. Provision of services in Jammu & Kashmir: The appellant contended that services in Jammu & Kashmir were provided by a sub-contractor, not by them, and thus, they did not take credit for input services used in providing these services. The Tribunal noted that services provided in Jammu & Kashmir are neither taxable nor exempted, as per Section 64 of the Finance Act, 1994, and Rule 2(e) of the Cenvat Credit Rules. Therefore, Rule 6 of the Cenvat Credit Rules was not applicable, and no service tax demand was sustainable on this ground. This view was supported by the decision in *Ramboll Imisoft Pvt. Ltd. Vs. Commissioner of Customs & Central Excise, Hyderabad-II* (2017 (47) S.T.R. 61 (Tri. - Hyd.)). 3. Provision of services to Special Economic Zones (SEZ): The appellant argued that services provided to SEZ units were considered 'exports' and thus exempt from service tax. The Tribunal referred to the retrospective amendment brought by Section 144 of the Finance Act, 2012, which clarified that services provided to SEZ units are not 'exempted services' and thus do not attract the provisions of Rule 6 of the Cenvat Credit Rules. This position was further supported by the decision in *Repro India Ltd.* (2009 (235) E.L.T. 614 (Bom.)), which held that supplies to SEZ units are deemed exports and are entitled to all export benefits. 4. Revenue neutrality of transactions: The appellant claimed that the transactions were revenue-neutral as any excess utilization of Cenvat Credit in one month would result in more payment from PLA in subsequent months. The Tribunal accepted this argument, noting that the appellant had paid a substantial amount through PLA, which negated any revenue loss. This position was supported by several decisions, including *Narmada Chematur Pharmaceuticals Ltd.* (2005(179)ELT 276(SC)) and *CCE, Pune vs. Coca-Cola India Pvt. Ltd.* (2007(213)ELT 490(SC)). 5. Time-barred demand: The appellant contended that the demand was time-barred as there was no suppression of facts or mala fide intention. The Tribunal agreed, noting that the appellant had disclosed all relevant details in their ST-3 returns and there was no evidence of intentional evasion of tax. The Tribunal cited several decisions, including *Cosmic Dye Chemical v. Collector of Central Excise, Bombay* (1995 (75) E.L.T. 721 (S.C.)), to support this view. Conclusion: Based on the above analysis, the Tribunal found that the impugned order was not sustainable and set it aside, allowing the appeal with consequential relief. The decision was pronounced in the open court on 01.03.2023.
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