2024 (5) TMI 70 - AT - Service Tax

Reversal of proportional CENVAT Credit - trading activity - exempt services - respondent had neither maintained separate inventory nor had opted in terms of Rule 6(2) of CENVAT Credit Rule (CCR) 2004 - HELD THAT - If the manufacturer or provider of service had failed to exercise the option under sub-rule 6(3) of the CCR 2004 will be allowed to pay the proportionate credit along with the interest at the rate of 15% per annum from the due date for payment of amount till the date of payment. Hence the appellant is eligible for the benefit of reversing the proportionate credit only if it is done along with interest as per law. As per Rule 6(3) of the CCR 2004 the appellant in the first place is not eligible to avail credit on exempted products. For the benefit of the taxpayers where common credit is availed on both dutiable and exempted goods/services certain provisions are enabled for the convenience of the taxpayer to ensure that credit is taken only on the dutiable products/services. In the present case the Commissioner while allowing payment of proportionate credit as per Rule 6(3A) with regard to interest holds that interest is not liable to be paid since sufficient balance was available in their account. The Commissioner has failed to notice that Rule 6(3A) is only an option given to the appellant allowing reversal of credit at a later date only if it is paid along with interest. The reliance placed by the Commissioner on the decision of the Hon ble High court of Karnataka in the case of CCE ST LTU Bangalore vs Bill force Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT is misplaced since the facts of that case was excess availment of credit which was unutilized and reversed. The present case is clearly distinguishable as it is allowing the option of proportionate reversal of credit provided the reversal happens along with interest. The Commissioner s order with regard to confirmation of service tax demand of Rs.1, 14, 64, 277/- upheld - Revenue s appeal with regard to demand of interest is upheld - interest is to be paid on the above demand of Rs.1, 14, 64, 277/- in terms of Rule 6(3A) of the Cenvat Credit Rules 2004. Revenue s Appeal is allowed only to the extent of demand of interest.

Summary

Issues Involved:
1. Eligibility of CENVAT Credit on services used in trading activities.
2. Applicability of interest on reversed CENVAT Credit.

Summary:

1. Eligibility of CENVAT Credit on services used in trading activities:
The department filed an appeal against the Order-in-Original No. 29/2018 dated 09.04.2018, which allowed M/s. Motorola Mobility India Pvt. Ltd. to avail CENVAT Credit on ineligible services used in trading activities. The audit officers found that the respondent was engaged in trading, an exempted service since 01.04.2011, and thus not eligible for CENVAT Credit on services used in trading. The Commissioner observed that the respondents were predominantly engaged in taxable services during 2011-2012 and 2012-2013 and had reversed Rs.1,14,64,277/- proportionate credit on 26.04.2016 as per Rule 6(3)(ii) read with Rules 6(3A). The Commissioner held that Rule 6(3) provides three options for credit reversal and accepted the proportionate credit reversal citing previous decisions (Mercedes Benz India (P) Ltd., Cranes and Structural Engineers, Aster Private Limited).

2. Applicability of interest on reversed CENVAT Credit:
The Commissioner dropped the interest on the reversed credit, reasoning that the respondent had sufficient balance in their CENVAT credit account throughout the relevant financial years and had reversed the credit promptly after audit observations, following the decision in CCE, ST & LTU Bangalore vs Bill force Ltd. The Revenue contended that as per Rule 6(3A) of CCR, 2004, interest is mandatory on any short or delayed payment. The Tribunal upheld the Commissioner's order on the service tax demand of Rs.1,14,64,277/- but ruled that interest is payable on this amount in terms of Rule 6(3A) of CCR, 2004, emphasizing that interest is compensatory and must be paid when credit is reversed late.

Conclusion:
The Revenue's appeal was allowed only to the extent of demanding interest on the reversed CENVAT Credit of Rs.1,14,64,277/-.

(Order pronounced in Open Court on 30.04.2024.)