2018 (5) TMI 1138 - AT - Service Tax

CENVAT credit - input services used for output service i.e. export cargo handing service - providing of taxable as well as exempt services - invocation of Rule 6 of CCR 2004 - Held that - Since the appellant paid service tax on the output service, denial of cenvat credit is incorrect - Though the adjudicating authority decided the matter on principle but did not verify factual aspect of amount of cenvat credit attributed to the exempted cargo handling service vis-a-vis service tax paid by the appellant in respect of export cargo handling service, if it is found to be correct that that appellant have paid service tax which is more than the cenvat credit attributable to the export cargo handling then the demand will not exist. Matter remanded to the adjudicating authority to decide the matter a fresh after verifying the records of the assessee - appeal allowed by way of remand.

Summary

Issues:
1. Admissibility of cenvat credit on input services used for exempted services.
2. Application of Rule 6 of Cenvat Credit Rules, 2004.
3. Payment of service tax on output service affecting cenvat credit.

Analysis:

Issue 1: Admissibility of cenvat credit on input services used for exempted services:
The appellant, engaged in providing various services including export cargo handling, availed cenvat credit for input services and capital goods under Cenvat Credit Rules, 2004. The dispute arose regarding the denial of cenvat credit on input services used for export cargo handling service, which is exempted from service tax. The appellant argued that since they paid service tax on the output service of export cargo handling, it cannot be considered as an exempted service, and hence, Rule 6 should not apply.

Issue 2: Application of Rule 6 of Cenvat Credit Rules, 2004:
The revenue contended that since export cargo handling service is not taxable, cenvat credit on input services used for providing such service should not be allowed. The Assistant Commissioner argued that payment of service tax by the appellant does not absolve them from the application of Rule 6(3) of CCR 2004, leading to the confirmation of the demand for cenvat credit by the lower authority.

Issue 3: Payment of service tax on output service affecting cenvat credit:
The Tribunal observed that the appellant's payment of service tax on the output service of export cargo handling exceeded the cenvat credit attributed to that service. It was noted that the adjudicating authority did not verify the factual aspect of the amount of cenvat credit related to the exempted cargo handling service compared to the service tax paid by the appellant. Consequently, the Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for a fresh decision after verifying the records to determine if the appellant indeed paid more service tax than the cenvat credit attributed to the export cargo handling service.

In conclusion, the appeal was allowed by way of remand to the adjudicating authority for a reevaluation based on the findings related to the payment of service tax and cenvat credit, emphasizing the need for a thorough verification of the records to determine the correctness of the demand for cenvat credit.