2024 (12) TMI 529 - AT - Service Tax

Availment of cenvat credit on common input services - failure to maintain separate accounts as per Rule 6(3) of Cenvat Credit Rules, 2004 in respect of the said exempted services despite having availed 100% Cenvat credit on input services - HELD THAT - It is settled law that when the credit amount availed in respect of services utilized, towards exempted product have been paid along with interest, conditions prescribed under Rule 6(3)(ii) read with Rule 6(3A) are considered to have been sufficiently complied with. It has been held that main objective of Rule 6 ibid is to ensure that Cenvat credit on input or input services utilized in respect of exempted services is not availed of. In the case of JOST S ENGINEERING CO. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI-III 2013 (8) TMI 463 - CESTAT MUMBAI , the Tribunal held as unsustainable the confirmation of demand to pay an amount of 5%/10% of the value of exempted goods when the appellant reversed not only the credit taken on input services used in the manufacture of exempted goods but also the credit taken on input services used in the manufacture of dutiable goods along with interest thereon. The apex court, in the case of CHANDRAPUR MAGNET WIRES (P) LTD. VERSUS COLLECTOR OF C. EXCISE, NAGPUR 1995 (12) TMI 72 - SUPREME COURT , had held that the reversal of credit availed on common inputs, though post clearance would absolve the assessee of liability to pay 10% of their price by virtue of such reversal of credit and paying interest thereon. There is no merit in the appeal filed by the department and the same is therefore liable to be dismissed. The order of the lower authority is upheld.

Summary

Issues:
Appeal against Order-in-Original, Availment of Cenvat credit on common input services, Failure to maintain separate accounts, Penalty imposition under Cenvat Credit Rules, Compliance with Rule 6(3)(ii) and Rule 6(3A), Proportionate reversal of Cenvat credit, Failure to intimate department about the chosen option, Interpretation of Rule 6 of Cenvat Credit Rules, Precedents on reversal of credit availed on common inputs, Discrepancies in maintaining separate records for exempted goods/services, Applicability of penalty and interest.

Analysis:

The judgment involves an appeal against Order-in-Original No. 04/S.T./Pra. Ayukta/2020 dated 20.02.2020, where the Revenue contested the decision regarding the availment of Cenvat credit on common input services by the Respondent. The proceedings initiated from a show cause notice issued by the Commissioner, Audit, Central Tax Audit Commissionerate, Patna, highlighting the Respondent's failure to maintain separate accounts for exempted services despite availing 100% Cenvat credit on input services. The department argued that the Respondent did not comply with Rule 6(3) of the Cenvat Credit Rules, 2004, leading to penalty imposition under Section 78 of the Finance Act. However, the Commissioner accepted the Respondent's reversal of credit along with interest and dropped the demand issued in the show cause notice.

The main contention in the appeal was the failure of the Respondent to disclose the availment of Cenvat credit on inputs used in exempted services and the absence of separate records, which according to the department, invalidated the Commissioner's decision to drop the demand and refrain from imposing a penalty. The department emphasized that the Respondent did not follow the mandatory conditions laid down under Rule 6 of the Cenvat Credit Rules, 2004, and did not furnish the required declaration under Rule 6(3A)(a).

Upon reviewing the facts and evidence presented by both parties, the Tribunal noted that the Respondent had rectified the wrongly availed credit amount and paid the applicable interest. The Tribunal referenced a similar case where the reversal of proportionate Cenvat credit was accepted without issuing a show cause notice, indicating inconsistency in treatment for the same issue.

The Tribunal referred to various precedents and interpretations of Rule 6 of the Cenvat Credit Rules, emphasizing the objective of ensuring that Cenvat credit on inputs used for exempted services is not availed. It was highlighted that compliance with Rule 6(3)(ii) and Rule 6(3A) is considered sufficient when the credit amount availed for services used in exempted products is paid back along with interest. The Tribunal also cited cases where the failure to maintain separate records did not preclude the reversal of credit availed on common inputs.

In conclusion, the Tribunal dismissed the appeal filed by the department, upholding the lower authority's order. The Cross Objections were also disposed of accordingly, emphasizing the importance of compliance with Rule 6 of the Cenvat Credit Rules and the reversal of credit availed on common inputs for exempted goods/services.