2022 (6) TMI 468 - AT - Service Tax

CENVAT Credit - Common input services used in manufacture of both taxable as well as exempt goods - non-maintenance of separate records - rule 6(3A) of CENVAT Credit Rules, 2004 - HELD THAT - It is admitted in the orders of the lower authorities that, while letter DOF no. 334/8/2016-TRU dated 29th February 2016 of Ministry of Finance elaborating upon the amendment in rule 6 of CENVAT Credit Rules, 2004 may favour the appellant herein, the prospective intent of amendment in rule 6 of CENVAT Credit Rules, 2004 precludes such shelter for the period of dispute in this appeal. Furthermore, and strangely so after noting that the two orders relied upon in submissions were interim in nature, the original authority considered the decision in THYSSENKRUPP INDUSTRIES (I) PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE 2014 (10) TMI 476 - CESTAT MUMBAI to be worthy of emulation. It does not seem to have occurred to the lower authorities that disposal of application for stay of recovery pending decision on the appeal did not warrant anything other than a preliminary survey of the law and, thereby, depriving it of status as binding precedent. CENVAT credit scheme is operated through the self-contained CENVAT Credit Rules, 2004 and its essence is availment and utilization in self-maintained records that, once reported in periodical returns, becomes irretractable except by revision in subsequent return. The filtration for availment is conformity with rule 3 of CENVAT Credit Rules, 2004 and utilization is governed by rule 4 of CENVAT Credit Rules, 2004. Recovery of ineligible credit is enabled through rule 14 of CENVAT Credit Rules, 2004. Rule 6 of CENVAT Credit Rules, 2004 is not, by any stretch, a substitute for either rule 3 or rule 14 of CENVAT Credit Rules, 2004 - it is clear that the signification of the formula for apportionment of credit relates to such credit as is not amenable to attribution according to the taxability, or otherwise, of goods manufactured or service rendered. Impliedly, such impediment arises from impossibility of recording, or unwillingness to maintain, separate account of deployment. The sole change brought about by the amendment of 2016 has, all the same, to do with the extent of detailing in the records of utilization of input / input service which was not explicitly articulated till then but, nonetheless, implicit. Total CENVAT credit is total to the extent that such credit has remained unattributed in the accounts to taxable goods or services. This dispute over the formula in rule 6(3A) of CENVAT Credit Rules, 2004 arose in consequence of exercise of that option, from among those in rule 6(3) of CENVAT Credit Rules, 2004, for neutralization of credit that, in conformity with the injunction in rule 6(1) of CENVAT Credit Rules, 2004, could not be continued and the obvious disinclination to resort to the mandate of rule 6(2) of CENVAT Credit Rules, 2004. The non obstante qualification of rule 6(3) of CENVAT Credit Rules, 2004 accords regularity to other modes of neutralization that, at best, are approximations of attribution. The impugned order is set aside and the re-computation restored to the original authority before whom the accountal of credit taken on input service shall be furnished by the appellant herein and to which the ratio in the formula is to be applied - Appeal disposed off by this specific remand.

Issues Involved:
1. Liability under Rule 6(3) of CENVAT Credit Rules, 2004 for the years 2013-14 and 2014-15.
2. Correctness of the reversal of credit amount.
3. Interpretation of Rule 6 of CENVAT Credit Rules, 2004.
4. Applicability of amendments in Rule 6(3A) of CENVAT Credit Rules, 2004 from 1st April 2016.
5. Segregation of credit between eligible and ineligible input services.
6. Re-computation of credit reversal for the year 2014-15.

Detailed Analysis:

1. Liability under Rule 6(3) of CENVAT Credit Rules, 2004 for the years 2013-14 and 2014-15:
It is undisputed that liability arises under Rule 6(3) of CENVAT Credit Rules, 2004 for the years 2013-14 and 2014-15. The appellant, M/s Thyssenkrupp Industrial Solutions (India) Pvt Ltd, contends that the reversal of credit amounting to ?18,19,267 has erased the obligation. However, the Commissioner upheld the recovery of ?23,45,469 out of ?52,87,392 demanded in the show cause notice.

2. Correctness of the reversal of credit amount:
The appellant reversed credit in proportion to the value of 'exempt service' relative to 'taxable service' for the relevant year. The tax authorities argued that the credit should be reversed in proportion to the value of 'taxable services' relative to the value of 'total services'. The appellant's reversal of ?12,50,567 was contested, and a higher amount of ?35,96,036 was sought by the authorities.

3. Interpretation of Rule 6 of CENVAT Credit Rules, 2004:
The dispute centers on the legislative intent of Rule 6 and the extent to which the lower authorities' computation breaches this intent. The rule mandates neutralization of credit used in rendering 'exempted service' or manufacturing 'exempted goods'. The authorities emphasized a formula that considers 'total CENVAT credit taken on input services' and not just 'common input services'.

4. Applicability of amendments in Rule 6(3A) of CENVAT Credit Rules, 2004 from 1st April 2016:
The appellant argued that the legislative intent is evident in the amendment effective from 1st April 2016, which should apply to disputes on reversals predating the amendment. The lower authorities, however, noted that the prospective intent of the amendment precludes its application to the period in dispute.

5. Segregation of credit between eligible and ineligible input services:
The Tribunal noted that the segregation of credit between eligible and ineligible input services is crucial. The formula for apportionment of credit relates to credit not amenable to attribution according to the taxability of goods or services. The Tribunal referenced various decisions supporting the interpretation that 'total CENVAT credit' should only include common input services and not the total input service credit.

6. Re-computation of credit reversal for the year 2014-15:
The Tribunal emphasized that the principle of correct segregation of credit must be established. The impugned order was set aside, and the re-computation was restored to the original authority. The appellant is required to furnish the accountal of credit taken on 'input service' for the year 2014-15, and the ratio in the formula is to be applied accordingly.

Conclusion:
The appeal was disposed of by remanding the case back to the original authority for re-computation of the credit reversal for the year 2014-15. The Tribunal clarified that the exercise should be limited to 2014-15 as the demand for the earlier year was set aside. The order was pronounced in the open court on 09/06/2022.

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