2024 (7) TMI 311 - AT - Service Tax

Wrongful availment of Cenvat Credit in excess of caps prescribed under the relevant provisions of Cenvat Credit Rules. 2004 - non-maintenance of separate accounts for the common inputs or input services used in or in relation to the provision of both taxable and exempted output service - period 2008-09 to 2009-10 - extended period of limitation - interest - penalty. Whether appellant has rightly utilised more than 20% of the credit availed towards payment of service tax or otherwise? - HELD THAT - There is a cap on the utilisation of the credit attributable to exempted goods or services. The extent rules, during the period prior to 01.04.2008, provided for a situation where, interalia, provider of output service opting not to maintain separate account, which is not a disputed fact in this case, could have followed various options. As per option 3C, the provider of output service was required to utilise credit only to the extent of an amount not extending 20% of the amount of service tax payable of taxable output service. Any credit utilised in excess of 20% would not be admissible in view of the cap prescribed in the rules and therefore to that extent it will be an inadmissible credit for the purpose of discharging service tax liability. However, what is being disputed is that whether there was any restriction in both availment and utilisation of credit or it was only for the purpose of utilisation. Also, whether the remaining surplus credit over and above the cap was otherwise available to them for utilisation in accordance with the CCR - the existence or otherwise of the circular is inconsequential. However, it is not clear as to why Madurai Commissionerate has issued such a Trade Notice based on the Circular and as to whether the same was withdrawn subsequently. However, it is found that the appellants claim to the unutilised credit is correct on merits, there are no reason to go into the circular. The amount which will not lapse has to be utilised only to the extent and in accordance with what is provided within the CCR and since that issue is not before us in the present appeal, it would not be desirable to pass any order regarding the manner in which or the extent to which, such credit could have been utilised subsequently or otherwise. This aspect, however, may require further quantification at the end of Adjudicating Authority to come to the conclusion whether the credit which were not otherwise available for utilisation could have been paid towards the demand or for discharge of any other service tax liability in accordance with the permissible rules. Whether an amount of Rs. 6,20,97,026/- being 8% on the value of exempted services rendered during the period from 2008-09 to 2009-10 is recoverable from them under proviso to Section 73(1) of the Finance Act, 1994? - HELD THAT - A plain reading of the provisions under Rule 6(3) of the CCR, effective from 01.03.2008, upto 31.01.2011 would indicate that in the event of service provider not opting to maintain separate account, he can follow either of the two options. Therefore, option to avail is with the service provider and no option can be forced on the service provider by the Department. In so far as not having followed the conditions and procedures specified under sub-rule 3A, we find that Rule 3A provides for determination and payment of amount payable under Clause 2 of Sub-rule 3 and detailed procedure has been prescribed, which essentially requires prior intimation to the Department and payment of an amount equivalent to the Cenvat Credit attributable to inputs and input service. Therefore, while there is a specific formula and method by which the amount needs to be calculated, a mere failure to opt for this method in the beginning would not take away the substantive right for claiming the same option at a later stage. There is merit in the argument of the appellant that he is entitled to opt for payment of an amount equivalent to the Cenvat Credit attributable to, interalia, input services used in or in relation to, provision of exempted services. The calculation of the amount, however, has to be in accordance with the provision envisaged under sub-Rule 3A of Rule 6(3). This recalculation of the amount has to be done. The appellants have submitted certain calculation, however, a detailed verification is required in respect of the credit claimed and the provision of utilisation etc., and therefore the Adjudicating Authority would have to go through the documents and accounts submitted by the appellant to work out the amount of credit which is required to be recovered from the appellant in respect of availment of input credit despite providing both exempted and dutiable services and admittedly not maintaining any separate account. Interest - HELD THAT - The first two issues namely utilisation in excess of 20% would not lead to lapsing of the remaining availed credit and also in respect of the option available for calculating the proportionate credit under Rule 6(3)(ii), the interest amount would also have to be re-calculated after ascertaining the exact date of payment of service tax, as also interest paid already, if any. Extended period of limitation - penalty - HELD THAT - Having provided both exempted and dutiable services, they had not maintained any separate account nor availed various options. Rule 6 of CCR is quite clear that one cannot take Cenvat Credit on such quantity of input or input service, which is used in the manufacture of exempted goods or for provision of exempted services. Therefore, despite being aware that they were not at all entitled for availing the credit in respect of the exempted services, they still continued to avail the same and had also not exercised their options which were otherwise available for people who were not opting to maintaining separate account of exempted and dutiable service. Thus, the appellants have deliberately choosen not to disclose their having not maintaining any separate account. Therefore, there is no infirmity in the order of the Commissioner in upholding the invokation of extended period in the facts of the case. Similarly, in the case of penalty also, it is found that they are liable to penalty under Section 78 in respect of non-payment of service tax payable. However, the quantum of penalty u/s 78 would again have to be re-determined for re-calculating the liability by extending the option. The entire order is required to be remanded back for re-determination of the amount of credit liable to be recovered from the appellant in view of observations made in foregoing paras and also for re-determination of the amount of interest payable for the failure to pay the service tax or the amount, as is required under the CCR. The appellants would provide all the documents and detailed calculation sheet to the Original Adjudicating Authority. Appeal allowed in part by way of remand.

Summary

Issues Involved:
1. Wrongful availment of Cenvat Credit in excess of the prescribed cap.
2. Liability to pay 8% of the value of exempted services for not maintaining separate accounts.
3. Interest payable under Section 75 of the Finance Act, 1994.
4. Penalty under Section 78 of the Finance Act, 1994.
5. Invokation of extended period for recovery.

Detailed Analysis:

1. Wrongful Availment of Cenvat Credit:
The appellants were found to have availed Cenvat Credit in excess of the 20% cap prescribed under the Cenvat Credit Rules, 2004 (CCR) for the period 2005-06 to 2007-08. The Tribunal noted that the rules clearly stipulate a cap on the utilisation of credit attributable to exempted goods or services. The Tribunal referenced the case of Idea Cellular Ltd. [2019-TIOL-3299-CESTAT-Mumbai], which clarified that while there is a cap on the utilisation of credit, there is no restriction on availing the credit. The Tribunal accepted that the credit utilised in excess of 20% was liable to be recovered but rejected the proposition that the remaining credit would lapse, as no such provision existed in the rules.

2. Liability to Pay 8% of Exempted Services:
For the period 2008-09 to 2009-10, the appellants did not maintain separate accounts for common inputs or input services used for both taxable and exempted services. The Tribunal noted that under Rule 6(3) of the CCR, the service provider has the option to either pay 8% of the value of exempted services or follow the procedure under Rule 6(3A). The Tribunal held that the option cannot be forced on the service provider by the Department. The appellants were entitled to opt for paying an amount equivalent to the Cenvat Credit attributable to inputs and input services used for exempted services, even if they did not initially follow the procedure under Rule 6(3A). This issue was supported by the case of Rockey Marketing (Chennai) Pvt Ltd. Vs Commissioner of Service Tax.

3. Interest Payable Under Section 75:
The Tribunal upheld the Adjudicating Authority's decision that interest is payable on the amount of service tax short paid or credit utilised in excess of the permissible limit. The interest is to be calculated from the date of utilisation of the credit until the date of payment. The Tribunal noted that the appellants did not contest the payment of interest and had already paid the applicable interest for delayed payments.

4. Penalty Under Section 78:
The Tribunal found that the appellants were liable to a penalty under Section 78 of the Finance Act, 1994, for non-payment of service tax. However, the quantum of the penalty would have to be re-determined after recalculating the liability by extending the option available under Rule 6(3). The Adjudicating Authority was directed to re-determine the penalty amount after recalculating the payable amount required to be recovered.

5. Invokation of Extended Period:
The Tribunal upheld the invokation of the extended period for recovery, noting that the appellants had not maintained separate accounts despite providing both exempted and dutiable services. The Tribunal found that the appellants deliberately chose not to disclose their failure to maintain separate accounts, justifying the extended period for recovery.

Conclusion:
The Tribunal remanded the matter back to the Original Adjudicating Authority for re-determination of the amount of credit liable to be recovered, the interest payable, and the penalty amount. The appellants were directed to provide all necessary documents and detailed calculation sheets to the Adjudicating Authority. The appeal was partly allowed by way of remand to the Original Authority.