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2024 (9) TMI 240 - AT - Service TaxRequirement to pay an amount equal to 6% of the value of the exempted products - appellant opted to reverse the proportionate credit in respect of the trading activity - separate books of accounts as prescribed under Rule 6(2) of the CCR, 2004 for CENVAT Credit maintained or not - HELD THAT - Rule 6(3A) provides for intimating the Department by issuing a letter as to the exercise of option of reversal of proportionate Credit. In the decision relied by the Ld. Consultant for the Appellant, it has been held that the said requirement is only procedural in nature and the substantive benefit cannot be denied on such grounds. Further, in this case, the Appellant has intimated the jurisdictional Range Officer, explaining that they were availing only the proportionate Credit on the value of taxable services, which is also reflected in their Balance Sheet as well as their ST3 Returns. The Department ought to have taken note of the fact that the Appellant has exercised the option. The Department cannot force the assessee to pay 5% or 6% of the value of exempted services when the assessee has exercised the option of reversing the proportionate Credit. The demand raised cannot sustain and requires to be set aside - appeal allowed.
Issues:
Whether the Appellant is liable to pay an amount equal to 6% of the value of the exempted products when they have opted to reverse the proportionate credit in respect of the trading activity (exempted service). Analysis: The appeal was filed against the Order-In-Appeal passed by the Commissioner (Appeals) CGST & Central Excise, Allahabad, regarding the demand of CENVAT credit and reversal of credit under Rule 6(3) of the CENVAT Credit Rules, 2004. The Appellant, engaged in providing "Health Club and Fitness Services" and "Beauty Parlour Services," also sold cosmetic products. The dispute arose when the audit team alleged that the Appellant did not reverse the proportionate amount of common CENVAT Credit attributable to trading of goods. The Adjudicating Authority dropped the demand of INR 3,99,180/- but confirmed a demand of INR 95,077/- under Rule 6(3) of the CCR, 2004, along with interest and penalty. The First Appellate Authority upheld the decision, leading to the appeal before the Tribunal. The Appellant contended that they maintained separate books of accounts as per Rule 6(2) of the CCR, 2004 for CENVAT Credit exclusively used for taxable and exempted services. They claimed to have reversed the proportionate credit as required by Rule 6(3A) of the CCR, 2004. The Appellant argued that the Lower Authorities failed to consider the value of exempted services in trading of goods as per Rule 6 inserted via the Finance Act 2011. They computed the value of exempted service based on the original value or 10% of the cost price, whichever is more. The Departmental Representative supported the impugned order, stating that the Appellant did not provide evidence of maintaining separate accounts for taxable and exempted services. It was argued that the Appellant did not intimate the jurisdictional Officer about exercising the option under Rule 6(3A) and thus, were liable to pay 6% of the value of exempted goods. However, the Tribunal noted that the Appellant had intimated the Range Officer about their option to reverse proportionate credit, as reflected in their Balance Sheet and ST3 Returns. The Tribunal held that the Department cannot demand payment based on the value of exempted services when the Appellant had exercised the option to reverse the proportionate credit. Referring to a relevant case law, the Tribunal found in favor of the Appellant, setting aside the demand and penalties imposed. The impugned orders were set aside, and the appeal was allowed with consequential relief.
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