2024 (6) TMI 507 - AT - Service Tax

Demand of 5%/6% of the value of the exempted services provided by the appellant during the impugned period i.e. 2009-10 to 2013-14 - common input services used in self-trading - appellants are maintaining separate books of accounts has been intimated by them to their jurisdictional authority - penalty - violation of principles of natural justice. The appellant contested the show-cause notices, but the adjudicating authority without examining the records and the facts of the case, passed the impugned order holding that the appellant is required to pay the amount equal to 5%/6% of the value of exempted services in terms of Rule 6 (3) of the Cenvat Credit Rules, 2004. HELD THAT - Although the appellant is maintaining separate account for exempted as well as taxable services and reversed the proportionate cenvat credit attributable to the exempted services. For transaction charge services, the service tax paid by the appellant was not proportionately reversed by the appellant. But on pointing out by CERA audit, the appellant has reversed the same. The same has been recorded by the adjudicating authority in the impugned order. As the fact of proportionate reversal of cenvat credit is on record and no credence was done by the adjudicating authority to the said fact, therefore, the impugned order is not sustainable in the eyes of law. It is found that as the appellant has already reversed the proportionate cenvat credit attributable to exempted services, in that circumstances, the appellant is not required to pay any amount equal to 5%/6% of the value of the exempted services. The same view has been taken by this Tribunal in the case of M/s Chryso India Private Limied Vs. Commissioner of CGST Central Excise, Kolkata North 2023 (5) TMI 596 - CESTAT KOLKATA , wherein this Tribunal has observed ' even prior to Rule 6 (3AA) coming into effect from 01/4/2016, they have been taking the view that mere non filing of the option letter should not be used to deprive the assesssee from reversing the proportionate Cenvat Credit. The very fact that the Rule 6 (3AA) has been brought into effect from 1/04/2016 wherein the Adjudicating Authority is empowered to allow the assesse to reverse the Cenvat on proportionate basis on being pointed out, shows the legislative intent to allow the assessee to pay proportionate Cenvat Credit as the first option.' Thus, as the appellant has already reversed the proportionate input cenvat credit attributable to exempted services, in that circumstances, the appellant is not liable to pay an amount equal to 5%/6% of the value of the exempted services. Penalty - HELD THAT - As no demand is sustainable against the appellant, no penalty is imposable on the appellant. The impugned order is set aside - appeal allowed.

Summary

Issues:
Challenge to demand of 5%/6% of value of exempted services; Maintenance of separate accounts for common input services; Allegation of availing cenvat credit on common input services; Show-cause notices for payment of amount equal to 5%/6% of value of exempted services; Adjudicating authority's order requiring payment of 5%/6% of value of exempted services; Appellant's contention on reversal of cenvat credit; Revenue's support for impugned order.

Analysis:
The appeal challenges the demand of 5%/6% of the value of exempted services provided by the appellant during 2009-10 to 2013-14. The appellant, engaged in stock broking services, maintained separate books for stock broking and self-trading activities. The appellant availed cenvat credit on common input services without maintaining separate accounts for exempted and taxable services, leading to the demand. The appellant contested show-cause notices, arguing that proportionate cenvat credit reversal had been done. The Revenue supported the impugned order based on the appellant availing cenvat credit on common input services.

The issue revolved around whether the appellant was liable to pay 5%/6% of the value of exempted services for not maintaining separate accounts for common input services. The appellant had reversed proportionate cenvat credit attributable to exempted services, as noted in CERA audit findings. The Tribunal referenced precedents where non-filing of option letters should not result in huge payments under Rule 6(3) of Cenvat Credit Rules. The legislative intent was seen in Rule 6(3AA) to allow proportionate cenvat credit reversal. Consequently, the demand against the appellant was deemed unsustainable, leading to setting aside the impugned order.

The Tribunal held that since the appellant had already reversed the proportionate cenvat credit for exempted services, no payment of 5%/6% of the value of exempted services was required. As no demand was sustainable, no penalty was imposed on the appellant. The impugned order was set aside, and the appeal was allowed with any consequential relief. The judgment was pronounced on 11.06.2024 by the Appellate Tribunal CESTAT Kolkata, comprising Mr. Ashok Jindal and Mr. K.Anpazhakan.