2018 (3) TMI 506 - AT - Service Tax

Applicability of Rule 6 (3) (i) of CCR 2004 - CENVAT credit - provision of taxable as well as exempt services - non-maintenance of separate records - Held that - Admittedly, the appellant chose to follow payment of 5% in terms of Rule 6 (3) (i) for exempted goods. However, when pointed out later, that the same will apply for exempted services also (trading) the appellant chose to come out the scheme and pay the full duty liability on the exempted goods post 2011 and also reverse full credit of common input services post 01/04/2011, proportionate Cenvat credit pre 01/04/2007. On these facts, we note that the appellant did proceed and follow the option of reversing the credit on proportionate basis or full credit on common input services which satisfies the condition for one of the options under Rule 6. Admittedly, reversal of credit of proportionate amount prior to 01/04/2011 on common input services and fully post 01/04/2011 and payment of full duty liability on goods otherwise eligible for Notification 64/95-CE (post 2011) substantially satisfies the condition to be followed by an assessee in case of availing credit on common input services. The Hon ble Supreme Court in CCE & CUS vs. Precot Meridian Ltd. 2015 (11) TMI 323 - SUPREME COURT examining reversal of credit after a period of almost 6 years held that such subsequent reversal will amount to non-utilization of credit and consequences of such non-utilization will follow. The appellants cannot be asked to pay 5% of value of exempted services when they have reversed proportionate/all the credit available on common input services - appeal allowed - decided in favor of appellant.

Summary

Issues:
Applicability of Rule 6 (3) (i) of Cenvat Credit Rules, 2004 for the period 2009-2010 to 2013- 2014.

Analysis:
The appellant, engaged in manufacturing semiconductor devices and trading, availed Cenvat credit on inputs and input services. Dispute arose regarding the applicability of Rule 6 (3) (i) of Cenvat Credit Rules, 2004. The Revenue argued that the appellant must discharge 5%/6% of value of exempted services due to not maintaining separate accounts and availing credit on common input services. The Original Authority ordered the appellant to pay &8377; 1,17,57,573/- under Rule 6 (3) (i) and imposed a penalty under Rule 15 (2) read with Section 11AC of the Central Excise Act, 1944.

For the years 2009-2010 and 2010-2011, the appellant cleared dutiable and exempted goods, paying 5% of value of exempted goods as per Rule 6 (3) (i). After 01/04/2011, trading was recognized as an exempted service, leading the appellant to reverse full credit on common input services. The appellant also paid full duty liability on goods cleared under Notification 64/95-CE (post 2011) after being notified.

The impugned order demanded reversal under Rule 6 (3) (i) due to the appellant not taking suo-moto action to comply with the legal provisions. The appellant argued they fully complied with Rule 6 pre and post 01/04/2011, rectifying any discrepancies with applicable interest. The Revenue contended that the appellant's belated actions did not satisfy Cenvat Credit Rules.

The Tribunal analyzed the application of Rule 6 (3) (i) and found that the appellant's actions, including reversing credit on common input services and paying full duty liability, substantially complied with the rule's requirements. The Tribunal referred to precedents to support the appellant's proportionate reversal of credit as satisfying exemption conditions. The Supreme Court's ruling on subsequent credit reversal after a considerable period was also cited.

The dispute did not involve account maintenance or duty payment issues but centered on Rule 6 (3) (i) application. The Tribunal concluded that the appellant, having reversed credit on common input services, should not be required to pay 5% of value of exempted services. The Jurisdictional Authorities were tasked with verifying the correctness of the credit reversals. Consequently, the appeal was allowed.