2013 (11) TMI 558 - AT - Service Tax

Exemption under Notification 4/2004 - Rule 6(3)(C) of the CENVAT Credit Rules Waiver of Pre-deposit - the taxable services provided to a unit located in Special Economic Zone (SEZ) including under construction of the SEZ by any service provider are exempted from service tax subject to specified conditions Held that - Their case is covered by the retrospective amendment by way of insertion of clause 6(6)(A) of the CENVAT Credit Rules and the retrospective amendment is made applicable in the clause 144 of the Finance Bill, 2012 - the period after 09-02-2006 is squarely covered in the retrospective amendment - the notification No.04/2004 is a conditional exemption and therefore, the restrictions under Rule 6 of the CENVAT Credit Rules are not applicable - Period involved is clearly covered by the retrospective amendment as per clause 144 of the Finance Bill, 2012 and in respect of the other two appeals, the period involved is prior 10-02-2006 - the notification No.4/2004 r.w. Rule 25 of the SEZ is a conditional exemption and demand restrictions under Rule 6 of the CENVAT Credit Rules would not apply - Prima facie the appellants have a strong case in their favour - the pre deposit waived till the disposal stay granted.

Summary

Issues:
1. Waiver of deposit and stay of recovery of CENVAT credit and penalty confirmed by CCE (Appeals) for the period April 2005 to September 2005, October 2005 to March 2006, and October 2004 to March 2005.
2. Applicability of exemption under notification 4/2004-S.T. for services provided to a unit in a Special Economic Zone (SEZ) and the liability to pay service tax under Rule 6(3)(C) of the CENVAT Credit Rules, 2004.
3. Retrospective amendment under clause 6(6)(A) of the CENVAT Credit Rules and its impact on the case.
4. Interpretation of the conditional exemption under notification 4/2004 and the availability of CENVAT Credit when goods are exempted.

Analysis:
1. The Appellate Tribunal considered three sets of applications seeking waiver of deposit and stay of recovery of CENVAT credit and penalty for the mentioned periods. The issue revolved around the appellants availing exemption under notification 4/2004-S.T. for services provided to a unit in an SEZ. The Department contended that since input services were used in providing exempted services, the appellants were liable to pay service tax under Rule 6(3)(C) of the CENVAT Credit Rules, 2004.

2. The Ld. Advocate argued that the retrospective amendment through clause 6(6)(A) of the CENVAT Credit Rules applied to the period after 09-02-2006. For the period before this date, the Tribunal's decision in the case of Sobha Developers Ltd. was cited, stating that the notification 4/2004 was a conditional exemption, exempting the appellants from the restrictions under Rule 6 of the CENVAT Credit Rules. The Ld. Counsel contended that this decision favored the appellants' case.

3. On the other hand, the Ld. Departmental Representative emphasized that the notification 04/2004 granted exemption subject to conditions for services provided to SEZ units, implying that the appellants were not eligible for CENVAT Credit due to the exempted services. The Department challenged the Tribunal's decision in the case of Sobha Developers in the High Court.

4. The Tribunal, after hearing both sides, found that the period covered by one appeal was under the retrospective amendment, while for the other two appeals, the period fell before 10-02-2006. Citing the Tribunal's decision in the Sobha Developers case, the Tribunal held that the notification No.4/2004, along with Rule 25 of the SEZ, constituted a conditional exemption, exempting the appellants from the demand restrictions under Rule 6 of the CENVAT Credit Rules. Consequently, the Tribunal waived the pre-deposit and granted a stay against the recovery of all dues until the cases' disposal.