2024 (8) TMI 659 - AT - Service Tax

CENVAT Credit - non-maintenance of separate records - common services used for providing taxable as well as exempt goods - Contravention of Rules 6(3) of the CENVAT Credit Rules, 2004 - HELD THAT - The appellant is engaged in the activity of providing taxable services and also engaged in the manufacture of exempted goods. For providing outward taxable services, the appellant is availing CENVAT Credit on input services which were exclusively used for the taxable services and maintained separate accounts thereof. For inputs used in the manufacturing of exempted goods, the appellant is maintaining separate accounts and not availing any CENVAT Credit on the said inputs. There were certain common services which were availed by the appellant for providing taxable services as well as manufacturing exempted goods. Services namely, security services, bank charges, AMC for fax machines/intercom systems, etc., are covered under Rule 6(5) of the CENVAT Credit Rules, 2004, on which the appellant is entitled to avail CENVAT Credit at 100%, although they were providing taxable output services and manufacturing exempted goods. Therefore, on the said services, no reversal is required by the appellant. The appellant had utilized CENVAT Credit within 20% of payment of Service Tax during the financial years 2006-07 and 2007-08, in terms of Rule 6(3)(c) of the CENVAT Credit Rules, 2004. Therefore, the said CENVAT Credit cannot be denied to the appellant. The proceedings against the appellant by way of the impugned Show Cause Notice are not sustainable - the impugned order is set aside - appeal allowed.

Summary

Issues:
Demand raised for contravention of Rules 6(3) of the CENVAT Credit Rules, 2004.

Analysis:
The appellant was engaged in providing taxable services and manufacturing exempted goods. Separate accounts were maintained for each activity. The appellant availed 100% credit on inputs exclusively used for taxable services. No tax element was involved in inputs used for manufacturing exempted goods, and no credit was taken for those inputs. Common input services were availed by the appellant. An audit in 2011 led to demands of Service Tax, which were paid. Subsequent letters alleged excess CENVAT Credit utilization, leading to a Show Cause Notice in 2012. The Notice invoked the extended period of limitation and alleged excess credit utilization for specific financial years. The appellant contested the Notice, arguing correct compliance with Rule 6 and misinterpretation of law. The appellant maintained separate records for inputs used in each activity and reversed excess credit after the Notice. The appellant argued that the demands were disproportionate and based on incorrect facts. The appellant relied on legal precedent to support their case. The Revenue supported the impugned order.

The Tribunal found that the appellant availed credit correctly for taxable services and exempted goods. Certain common services were used for both activities. The Tribunal noted that specific services were eligible for 100% credit under Rule 6(5) of the CENVAT Credit Rules, 2004. The appellant had utilized credit within the prescribed limit for certain financial years. The appellant had also proportionately reversed credit for other years. Therefore, the Tribunal held that the proceedings against the appellant were not sustainable. The impugned order was set aside, and the appeal was allowed with consequential relief.