2018 (9) TMI 1661 - AT - Service Tax

Reversal of CENVAT Credit - Prescribed formula - Since appellant were providing both taxable and exempted services, they opted for reversal of proportionate credit of service tax in terms of the formula given in Rule 6 (3A) of Cenvat Credit Rules, 2004 - reversal as per formula prescribed under Rule 6 (3A)(b)(iii) - Held that - There is no dispute that the appellant has discharged the service tax liability on Financial Leasing Services by availing the exemption under N/N. 4/2006, dated 01.03.2006. The said notification specified that service tax is required to be paid on a value equal to 10% of the total amount representing interest. Balance 90% will enjoy exemption from payment of service tax. For Financial Leasing Services under section 65 (105)(zm), there is no doubt that service tax is payable even though a part of it is exempted by the above notification. Since service tax is payable, the said service cannot be covered by the definition of exempted services - once it is concluded that the Financial Leasing Service is not an exempted service, there is no justification in considering the portion of the value of taxable service exempted vide N/N. 4/2006, dated 01.03.2006 to be included in the formula for determining the amount to be reversed. Appellant has already reversed the Cenvat credit determined in terms of the above formula without including the portion of the value exempted under N/N. 4/2006 - there is no justification to order any further reversal. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Calculation of Cenvat credit reversal based on disputed interpretation of taxable services value for Financial Leasing Services under Notification No.4/2006.

Analysis:
The appeals involved a common issue regarding the calculation of Cenvat credit reversal for a company providing Banking and Financial Services during the disputed periods of 2008-09 and 2009-10. The appellant availed Cenvat credit under Cenvat Credit Rules, 2004, for both taxable and exempted services, necessitating a reversal of proportionate credit as per Rule 6 (3A)(b)(iii). The dispute arose from the interpretation of values for E & F in the reversal formula due to the treatment of "hypothecation and loan activity" taxable under Financial Leasing Services. The department contended that the exempted portion under Notification No.4/2006 should be added to the total value of exempted services for credit reversal calculation.

The crux of the dispute centered around whether the value exempted under Notification No.4/2006 for Financial Leasing Services should be considered in the formula for credit reversal. The appellant argued that since Financial Leasing Services were taxable, the exempted portion should not be included in the calculation as it did not fall under the definition of "exempted services" under Rule 2 (e) of the Cenvat Credit Rules, 2004. The department, however, maintained that the exempted portion should be added to determine the amount to be reversed.

The Tribunal analyzed the definition of "exempted services" and concluded that since Financial Leasing Services were taxable despite partial exemption under Notification No.4/2006, they did not qualify as "exempted services." Therefore, the exempted portion should not be considered in the credit reversal formula. As the appellant had already reversed the credit without including the exempted value, the Tribunal found no justification for further reversal as ordered by the lower authority.

In light of the above analysis, the Tribunal set aside the impugned orders and allowed the appeals, emphasizing that the exempted portion under Notification No.4/2006 should not be factored into the credit reversal calculation for Financial Leasing Services.