2019 (1) TMI 1240 - AT - Service Tax

CENVAT Credit - appellant availed cenvat credit on various input services , capital goods which were used for providing taxable services as well as exempted services - non-maintenance of separate records - it was also alleged that appellant have utilized credit in excess of 20% of the service tax paid in contravention of Rule 6(3)(c)of the Cenvat Credit Rules 2004. Held that - Undisputedly, for the period prior to 01.6.2007 the appellant had provided exempted services, namely International roaming charges and interconnect user charges which were exempted from payment of service tax. Since they have used common input services, in providing both taxable as well as exempted services and failed to maintain separate accounts of the said use, the restriction prescribed under Rule 6(3)(c) of Cenvat Credit Rules, 2004 is applicable - It is also an admitted fact that during the relevant period i.e. October 2004 to May 2007, the appellant in certain calendar months utilized excess of the prescribed limit of 20% of Cenvat Credit available, in discharging the service tax liability for that month. Whether Overall utilization of cenvat credit in a financial year ought to be taken into account, for applying the limit of 20% prescribed under Rule 6(3)(c) of the Cenvat Credit Rules,2004 instead of utilisation on month to month basis? - Held that - On a plain reading of the said provision, it is clear that in case of provider of output service who does not comply with Sub9 rule(2) of Rule 6 of Cenvat Credit Rules, 2004, the procedure required to be followed is prescribed at sub-rule (3) of Rule 6 of CCR, 2004; and under the said rule a restriction on utilization of the amount of Cenvat Credit available is prescribed and it is limited to 20% in discharging the tax liability on the output service. There has been no other provision under the Cenvat Credit Rules about the method, manner or frequency of payment of service tax on taxable output service and also utilisation of cenvat credit. Therefore, the point of time of its utilization and the restriction on utilization of credit should be read harmoniously along with Rules framed under Finance Act 1994, so far as it relates to discharge of service tax liability. Reading both the Rules, that is, Rule 6(3)(c) of CCR, 2004 and Rule 6(1) of Service Tax Rules, 1994, it can safely be inferred that at the time of discharging monthly service tax liability of output service provided, the assessee cannot utilize CENVAT credit more than 20% available in their Books of Accounts. It cannot be at their whims and pleasure to utilize more than 20% of the available credit in one month on the ground that in the previous month they have utilised less than 20% of the credit in discharging their tax liability, even though such credit was available to them. The appellant would be required to discharge interest on the excess utilization of the cenvat credit in a particular month at the applicable rate - there is no justification in imposing penalty or directing recovery of the credit, since the said Clause (c) of Rule 6(3) of Cenvat Credit Rules,2004 restricts utilization of credit to the extent of 20% and not on availing of cenvat credit. The matter is remanded to the adjudicating authority only for the limited purpose to calculate the amount of interest payable by the appellant for excess of the utilization of cenvat credit in a particular month i.e. on month to month basis for the entire period in question - appeal allowed by way of remand.

Issues Involved:
1. Utilization of Cenvat Credit exceeding 20% limit under Rule 6(3)(c) of CCR, 2004
2. Applicability of interest on excess utilization of Cenvat Credit
3. Imposition of penalty for excess utilization of Cenvat Credit
4. Interpretation of relevant rules and precedents

Detailed Analysis:

1. Utilization of Cenvat Credit exceeding 20% limit under Rule 6(3)(c) of CCR, 2004
The appellant, a provider of cellular phone services, utilized Cenvat Credit on various input services and capital goods for both taxable and exempted services without maintaining separate accounts. The appellant exceeded the 20% limit of Cenvat Credit utilization prescribed under Rule 6(3)(c) of the Cenvat Credit Rules, 2004, during certain months. The appellant contended that overall utilization for the entire disputed period should be considered rather than on a month-to-month basis. However, the tribunal held that the 20% limit applies on a monthly basis, as service tax liability is required to be discharged monthly under Rule 6(1) of the Service Tax Rules, 1994. The tribunal rejected the appellant's interpretation, emphasizing that such an interpretation would allow for the accumulation of credit, which is not the intention of the legislature.

2. Applicability of interest on excess utilization of Cenvat Credit
The tribunal acknowledged that the appellant utilized excess Cenvat Credit in certain months, but ruled that the consequence should not be the recovery of the credit itself, which was lawfully availed. Instead, the tribunal held that the appellant is liable to pay interest on the excess amount of Cenvat Credit utilized in discharging the service tax liability. This approach aligns with the precedent set in the case of D.B.C. Port Logistics Ltd., where interest was deemed payable for excess utilization of credit. The tribunal rejected the appellant’s argument that interest should be calculated by offsetting months of excess utilization with months of underutilization, stating there is no legal basis for such a method.

3. Imposition of penalty for excess utilization of Cenvat Credit
The tribunal found no justification for imposing penalties or directing the recovery of the credit, as the restriction under Rule 6(3)(c) pertains to the utilization of credit and not its availing. The tribunal noted that after 1.4.2008, the restriction on the utilization of 20% credit was removed, allowing the appellant to utilize the accumulated credit.

4. Interpretation of relevant rules and precedents
The tribunal analyzed the relevant provisions of the Cenvat Credit Rules, 2004, and the Service Tax Rules, 1994, harmoniously. It concluded that the 20% limit on Cenvat Credit utilization must be applied on a monthly basis in line with the monthly service tax liability discharge requirement. The tribunal also addressed the appellant’s reliance on the Vijayanand Roadlines Ltd. case, deeming it per incuriam as it did not consider Rule 6(1) of the Service Tax Rules, 1994. Consequently, subsequent judgments relying on Vijayanand Roadlines Ltd. were also not considered binding precedents.

Conclusion:
The tribunal modified the impugned order and remanded the matter to the adjudicating authority to calculate the interest payable by the appellant for the excess utilization of Cenvat Credit on a month-to-month basis for the entire period in question. The appeal was disposed of accordingly.

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