2022 (10) TMI 321 - AT - Service Tax

CENVAT Credit - common input services used both in providing the taxable service and the exempted service - security services telephone services - non-maintenance of separate records - Rule 6(3) of the CCR - HELD THAT - Rule 6 of CCR places several obligations upon the assessee to avail Cenvat credit. If these obligations are not fulfilled, the assessee cannot avail Cenvat credit and if an assessee avails Cenvat credit without fulfilling the obligations under Rule 6 such irregularly availed Cenvat credit can be recovered under Rule 14 of CCR. These obligations under Rule 6 can be fulfilled opting for Rule 6(1) or Rule 6(2) or Rule 6(3) of the CCR - Rule 6(3) states that if Rule 6(1) or 6(2) are not fulfilled then an amount of 5% / 6% of the value of the exempted services shall be paid. These options are available to the assessee and it is open to the assessee to chose any of the options. It is not open to the Revenue to chose one of the options and force it upon the assessee. If the obligation is not fulfilled under any of the options, the irregularly availed Cenvat credit can be recovered under Rule 14 of CCR. In this case, the appellant availed Cenvat credit and on being pointed out by the audit, reversed the entire amount of Cenvat credit so availed along with interest. The appellant could have availed Cenvat credit proportionately to the extent such common input services were used in rendering taxable services. However, to buy peace, the appellant reversed the entire amount of Cenvat credit. Therefore, no Cenvat credit on common input services remains availed by the appellant and its Therefore, the obligation under Rule 6(1) has been fully met. Further, Rule 6(2) requires separate accounts to be maintained but it does not specify in what form the accounts have to be maintained - As the appellant has fulfilled its obligation in terms of Rule 6(1) and also in terms of Rule 6(2), no case existed at all for issuance of the show cause notice in the first place nor it being confirmed by the impugned order - The show cause notice was issued and the impugned order was passed completely contrary to the law laid down by the Supreme Court in CHANDRAPUR MAGNET WIRES (P) LTD. VERSUS COLLECTOR OF C. EXCISE, NAGPUR 1995 (12) TMI 72 - SUPREME COURT . The impugned order cannot be sustained and needs to be set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against order confirming demand under Rule 14 of Cenvat Credit Rules, 2004 along with interest and penalty under Rule 15(3) of CCR based on availing Cenvat credit on common input services without maintaining separate records for taxable and exempted services.

Analysis:
1. The appellant challenged the order confirming a demand under Rule 14 of Cenvat Credit Rules, 2004, along with interest and penalty, issued by the Commissioner, Central Excise & Service Tax, Alwar. The appellant was engaged in providing "forward contract services" taxable under Section 65(45a) of the Finance Act, 1994, and was availing Cenvat credit on common input services used for both taxable and exempted services. The audit team discovered the lack of separate records for taxable and exempted services, leading to a demand for payment under Rule 6(3) of the CCR.

2. The appellant had reversed the entire amount of Cenvat credit on common input services during the audit itself, in compliance with the audit team's findings. Despite this, a show cause notice was issued demanding payment under Rule 6(3) of the CCR. The appellant argued that since the availed Cenvat credit was reversed, following the Supreme Court precedent in Chandrapur Magnet Wires (P) Ltd. Vs. Collector of Central Excise, Nagpur, the notice was unjustified. The Revenue, however, supported the impugned order.

3. The Tribunal analyzed Rule 6 of the CCR, emphasizing the obligations imposed on the assessee to avail Cenvat credit. It noted that non-fulfillment of these obligations could lead to recovery under Rule 14 of CCR. The rule provides options under Rule 6(1), Rule 6(2), and Rule 6(3) for maintaining accounts and payment in case of exempted services. The Tribunal clarified that the choice of compliance lies with the assessee, and non-compliance can lead to recovery of irregularly availed Cenvat credit.

4. The Tribunal found that the appellant had fully complied with Rule 6(1) by reversing the availed Cenvat credit and with Rule 6(2) by maintaining accounts through the reversal process. As the appellant had met its obligations under Rule 6, the show cause notice and the impugned order were deemed contrary to law. Relying on the Supreme Court precedent, the Tribunal set aside the impugned order, allowing the appeal and providing consequential relief to the appellant.

5. In conclusion, the Tribunal held that the appellant's reversal of Cenvat credit on common input services fulfilled its obligations under Rule 6 of the CCR, rendering the demand and penalty unjustified. The impugned order was set aside, emphasizing the importance of compliance with Cenvat credit rules and the consequences of non-fulfillment of obligations.