2023 (6) TMI 543 - AT - Service Tax

Reversal of CENVAT Credit - common input services used in providing of taxable as well as exempt goods - procurement of bought out items through high sea sale and local procurements - sub-rule (3A) of Rule 6 of CCR 2004 - non-adoption of correct formula resulted in short reversal of cenvat credit as required under Rule 6 (3) of CCR 2004 - levy of penalty as regards confirmation of demand under BAS. Formula that has to be adopted for reversing the credit as required under Rule 6 (3) of CCR 2004 - HELD THAT - The only dispute is whether the total cenvat credit on input services availed by the appellant has to be taken for computation of amount that has to be reversed or whether the total cenvat credit availed on common input services has to be applied. This issue is no longer res integra and has been decided by the Tribunal in the case of CCE ST, Chennai Vs Chennai Petroleum Corporation Ltd. where it was held that amendment made by substitution is clarificatory in nature and, therefore, applicable retrospectively. Following the said decision, we do not find any error in the view of the Commissioner (Appeals) that the computation has to be done by adopting the total common Cenvat credit and not total Cenvat credit. The Tribunal in the case of COMMISSIONER OF CENTRAL EXCISE ST, RAJKOT VERSUS M/S. RELIANCE INDUSTRIES LIMITED 2019 (3) TMI 784 - CESTAT AHMEDABAD had considered the issue as to interpreting the term total cenvat credit given in the formula. It was held that whole Rule 6 (1) (2) (3) has to be read harmoniously and conjointly and it would be clear that total cenvat credit for the purpose of formula under Rule 6 (3A) is only the total cenvat credit on common input services and will not include cenvat credit on input / input services exclusively used for the manufacture of dutiable goods. If the interpretation of the Revenue is accepted, it would result in an anomaly that the cenvat credit which is availed for manufacture of dutiable goods also will get disallowed - The said decision was appealed by the Revenue before the Hon ble High Court of Gujarat in C.C.E AND S.T., RAJKOT VERSUS RELIANCE INDUSTRIES LTD. 2020 (1) TMI 1640 - GUJARAT HIGH COURT . The Hon ble High Court vide order dated 23.01.2020 dismissed the plea of the department in regard to the issue whether Tribunal was correct in holding that total cenvat credit for the purpose of formula under rule 6 (3A) is only total cenvat credit of common input service and will not include the cenvat credit on input/input service exclusively used for manufacture of dutiable goods. The demand confirmed alleging that appellant has adopted incorrect formula requires to be set aside. The demand therefore cannot sustain and the same is set aside. Penalty u/s 76 of FA for demand of service tax under BAS - HELD THAT - On perusal of the impugned order, it is seen that the original authority has imposed an amount of Rs.42,989/- only as penalty. Further option to pay reduced penalty @ 25% of the service tax demand has also been given. Taking into consideration these aspects, there are no grounds to set aside the penalty and the same is upheld. The impugned orders are modified to the extent of setting aside the demand raised alleging non-adoption of correct formula for reversal of cenvat credit under Rule 6 (3) of CCR only - appeal allowed in part.

Summary

Issues Involved:
1. Incorrect formula adoption for reversal of Cenvat credit under Rule 6(3) of CCR 2004.
2. Short-payment of Service Tax under Business Auxiliary Service (BAS).

Summary:

Issue 1: Incorrect Formula Adoption for Reversal of Cenvat Credit

The appellant, engaged in trading and manufacturing of turbines, was found to have short-paid the amount of Cenvat credit to be reversed under Rule 6(3) of Cenvat Credit Rules (CCR) 2004 for exempted services. The department noticed during an audit that the appellant availed Cenvat credit on common input services but did not apply the correct formula under Rule 6(3A) of CCR 2004, resulting in a short reversal amounting to Rs.6,63,93,170/- for the period 2012-13 to 2014-15. A show cause notice was issued, and the original authority confirmed the demand along with interest and penalties. A subsequent show cause notice dated 16.10.2018 alleged similar non-adoption of the correct formula, proposing a demand of Rs.1,20,76,891/-. The Commissioner (Appeals) upheld the original order.

The Tribunal held that the formula for reversing credit should consider only the total common Cenvat credit and not the total Cenvat credit, including those used exclusively for dutiable goods. This interpretation aligns with several precedents, including CCE v. Reliance Industries Ltd. and Honda Cars India Ltd. The Tribunal set aside the demand based on the incorrect formula, referencing CBEC Circulars clarifying that Rule 6 applies only to common inputs and input services.

Issue 2: Short-Payment of Service Tax Under BAS

The appellant was also found to have short-paid service tax under the Business Auxiliary Service (BAS) category. The appellant contested only the penalty imposed, having paid the service tax when pointed out by the department. The original authority imposed a penalty of Rs.42,989/-, with an option to pay a reduced penalty. The Tribunal upheld the penalty, finding no grounds to set it aside.

Conclusion:

The Tribunal modified the impugned orders by setting aside the demand related to the incorrect formula for reversal of Cenvat credit under Rule 6(3) of CCR 2004. The appeal concerning the penalty under BAS was upheld. The appeals were partly allowed with consequential relief.