2018 (9) TMI 1671 - AT - Service Tax

CENVAT Credit - common input services used in dutiable as well as exempted services - non-maintenance of separate records - Rule 6(2) of CENVAT Credit Rules, 2004 - whether the demand can sustain and when the appellant has not followed the requirement of intimating the department about availing the option as to Rule 6(3A) of CENVAT Credit Rules, 2004? - Held that - The demand is made only because they did not intimate the department that they are availing the option. The said requirement is only a procedural requirement, the Tribunal in the case of Mercedes Benz 2015 (8) TMI 24 - CESTAT MUMBAI has held that the demand cannot sustain for such procedural lapse - demand cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of Rule 6(3A) of CENVAT Credit Rules, 2004 regarding reversal of credit on exempted services without intimating the department.

Analysis:
The case involved the appellants registered for service tax under various categories, availing CENVAT credit on inputs and input services. The department alleged that common input services were used for both dutiable and exempted services without maintaining separate accounts as required by Rule 6(2) of CENVAT Credit Rules, 2004. The appellant later reversed the proportionate credit on exempted services but did not inform the department about exercising the option as per Rule 6(3A). Consequently, a show cause notice was issued demanding the credit on exempted services, interest, and penalties. The original authority confirmed the demand, interest, and penalties, leading to the appeal.

The appellant argued that although they had reversed the credit on exempted services, the demand was based on the failure to intimate the department about opting for the reversal, which they considered a procedural lapse. Citing precedents like the case of Aster Pvt. Ltd. Vs. Commissioner of Central Excise and Mercedes Benz India Pvt Ltd Vs. Commissioner, the appellant contended that substantial benefit should not be denied for a procedural lapse. The department, represented by the Id. AR, supported the findings in the impugned order.

After hearing both sides, the Tribunal considered the issue of whether the demand could be sustained when the appellant did not comply with the requirement of intimating the department about availing the option under Rule 6(3A) of CENVAT Credit Rules, 2004. The Tribunal noted that the appellants had indeed reversed the credit on exempted services, and the demand was solely due to the failure to inform the department about exercising the option. Considering the procedural nature of the requirement, the Tribunal referred to the decision in Mercedes Benz case, where it was held that a demand cannot be sustained for such procedural lapses. Consequently, the Tribunal set aside the impugned order, allowing the appeal with any consequential relief deemed necessary.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the demand based on the failure to intimate the department about availing the option under Rule 6(3A) of CENVAT Credit Rules, 2004, could not be sustained due to the procedural nature of the requirement. The decision was based on established precedents and the principle that substantial benefits should not be denied for procedural lapses.