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TMI Blog2018 (10) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... nserted specifically dealing with a situation as in the present case, where a deeming fiction was created that for the purposes of Rule 6 of CCR, 04, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a service as defined in section 65B(44) of the Finance Act, 1994 provided that such activity has used inputs or input services. That there was no such stipulation prior to 1.4.16 in law and prima facie such situation was not to be treated as exempt service and did not attract the mischief created under Rule 6 of the CCR, 04 - However, for the period prior to 1.4.16, does this mean that a service provider can take and retain full credit on input services received even after receipt of Completion Certificate? In our considered view, the situation will be governed by Rule 3 of the CCR, 04 till such time, i.e. till the time Rule 6 was specifically made applicable by virtue of the deeming fiction created. It is trite law and in terms of Rule 3 of the CCR, 04, Cenvat Credit of Service Tax paid on input services used to provide output service, is eligible. In light of the provisions of Rule 3 of the CCR, 04, the Appellant cannot avail full Cenvat Cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lid input services availed during the period 2010 till obtaining of Completion certificate, the said amounts reversed by them under protest cannot be retained by the revenue authorities and have to be returned to the Appellants. Appeal allowed - decided in favor of appellant. X X X X Extracts X X X X X X X X Extracts X X X X ..... SCNs, demanding 6%/8%/10% amount of sale of immovable property after obtaining Completion certificate where no Service Tax was paid by the Appellant, on the ground that they had availed Cenvat Credit and provided taxable as well as exempt services (sale of immovable property), and they had not maintained separate accounts. The amounts paid under protest for input services received during the period 2010 till obtaining completion certificate, viz. ₹ 1,17,68,904/-(in case of M/s. Alembic) and ₹ 65,30,867/-(in case of M/s. Shreno), were also sought to be appropriated against such demands. Such demand were confirmed against the Appellants under Rule 6 of CCR, 04, vide the impugned orders passed by the Ld. Commissioner. 1.6 In the meanwhile, refunds also came to be rejected and such rejection upheld by first Appellate authority vide orders which are also impugned in the present bunch of appeals, on the grounds that such credit was correctly reversed and was not required to be refunded. 2. Shri. S. R. Dixit, Ld. Counsel appearing for the Appellants argued that while the Appellants were regularly paying service tax on entire income for the said projects up to receipt of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id on input services, the Appellants had availed only proportionate credit based on the percentage of immovable property which had suffered service tax levy in the manner stated hereinabove. 2.3 The learned advocate took us through the provisions of Cenvat Credit Rules more particularly Rule 2(e) of the said rules which defines the term exempt service as also the definition of the term service itself as defined under Section 65B(44) of the Finance Act, 1994. It is the case of the Appellants that in case of sale of immovable property after receipt of completion certificate, the same is neither sale of goods nor services, as per Law and hence the same can never be exempted service within the meaning of Cenvat Credit Rules, 2004 at all, which requires that only a taxable service which is exempt from whole of service tax or a service on which no service tax is leviable under Section 66B of the Finance Act, 1994 or taxable service is part of values exempt subject to the condition of non-availment of credit, which alone can be treated as an exempt service and sale of immovable property being specifically kept out of the purview of the term "service" as per the Finance Act 1994 itself, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court as reported at 2015 (324) E.L.T. A86(SC), the provisions of Rule 11 of the Cenvat credit rules, do not require any reversal of credit in respect of input services unlike the mischief created for inputs contained in stock or contained in semi-finished state as on the date when the output service becomes exempt. 2.6 The Appellants heavily relied upon various decisions of the Hon'ble Tribunal as also various high courts as well as Hon'ble supreme court of India, in support of the claim that once credit was availed at the time when the output activity was dutiable/taxable, such credit cannot be denied, unless there are specific provisions to deny so, when the output service becomes exempt /non-taxable later on. The Appellants relied upon the following decisions in support of this contention. * HMT Ltd. 2008(232) ELT 217(Tri-LB) * HMT (TD) Ltd. 2015(322) ELT 342(P&H) * TAFE Ltd. 2011(268) ELT 49(Kar) * TAFE Ltd. 2015(322) ELT A 185(SC) * TAFE Ltd. 2015(322) ELT 864(Kar) * PSL Corrosion Control Services Ltd. 2016(339) ELT 406(Guj) * PSLCorrosion Control Services Ltd. 2016(339) ELT A208(SC) * Ashok Iron & Steel Fabricators 2002(140) ELT 277(Tri-LB) * Asho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, Shri J. Nagori, the AR on behalf of the Revenue reiterated the findings of the impugned orders passed by the Lower Authorities. He further submitted that the proportionate credit required to be reversed in respect of non-taxable transaction will necessarily include the whole of credit availed by the Appellants right from the inception of the project and cannot be taken to be limited only to the credits availed after receiving the completion certificate. He further argued that the Appellants did not follow the requirements of filing intimation etc. as required under Rule 6(3) of the Cenvat Credit Rules 2004 and hence the demand raised by the Lower Authorities is justifiable. The refund is also not legally allowable to them since the amount was legally payable and which has been appropriated against their total dues/demands by the original authority. 4. We have carefully considered the submissions made by both the sides and perused the records. We find that the Appellants had availed Cenvat Credit in the course of constructing the real estate projects developed by them, in terms of Rule 3 of the Cenvat Credit Rules, 2004. There is no dispute on such availment of Credit in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax will not be paid after Completion Certificate. 6. We find some merit in the submission made by the Ld. Counsel for the Appellants that for the purpose of invoking provisions of Rule 6 of the Cenvat Credit Rules, 2004, in the present set of facts and circumstances, the output service must first be exempt service. That upon receipt of Completion Certificate for the projects, the output activity of sale of residential units becomes "non-service" as per provisions of Section 65B of the Finance Act, 1994 read with definition of the term "exempt service" under Rule 2(e) of the CCR, 04. This is further supported by specific amendment carried out in Rule 6(1) of the CCR, 04 whereby w.e.f. 1.4.16, Explanation 3 was inserted specifically dealing with a situation as in the present case, where a deeming fiction was created that for the purposes of Rule 6 of CCR, 04, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a 'service' as defined in section 65B(44) of the Finance Act, 1994 provided that such activity has used inputs or input services. That there was no such stipulation prior to 1.4.16 in law and prima facie such situation was not to be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants have rightly relied upon the decision in the case of Foods, Fats and Fertilisers (supra) wherein it was held as follows: "The main allegation is that they did not maintain separate accounts for receipt, consumption and inventory of the inputs as prescribed in the Cenvat Credit Rules, 2002/2004. It is seen that the Appellants had not taken entire credit on the duty paid on the inputs used in dutiable and exempted products. It is on record that they had availed credit on pro-rata basis. In other words, the credit has been taken only in respect of inputs used in dutiable products. It is a fact that the Appellants have stated that they could not have separate inventory for the input used in dutiable and exempted products. That does not mean that they have not maintained separate accounts for the receipt and consumption of inputs used in dutiable and exempted products. A distinction was made between maintain separate inventory and accounts of inventory referring to Rule 57CC(9) and Rule 6. Our attention was invited to the sample copies of the work register for consumption details of the inputs along with entries in Cenvat register availing pro-rata credit. The details of the av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellants have fulfilled its obligation under Rule 3 of the CCR, 04 read with Rule 6 thereof and as such, they are not liable to pay any amount equal to 8%/10% of the "sale price of immovable property" after receipt of completion certificate under Rule 6 of the CCR, 04 as confirmed by the Adjudicating Commissioner against them. 12. As regards to the next issue of whether the Appellants were also required to reverse proportionate credit, out of the valid input service credits availed by them during the period 2010 till obtaining Completion Certificate, i.e. availing during the time when whole of output service of construction of residential complex was taxable. It was argued by the Appellants that out of business prudence, no developer wishes to have a situation where the properties are not sold as soon as possible and the property is converted into immovable property after receipt of completion certificate. It was also argued that as per Rule 3 of the CCR, 04, credit eligibility is to be examined as on date of receipt of input service and not governed by later developments such as portion of property getting converted into immovable property after receipt of completion certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o inputs and not to input services at all. Admittedly, in the present case, the dispute is limited to credits availed on input services during a time when output service was wholly taxable however, portion thereof became non-taxable on account of receipt of Completion Certificate later on. 16. This being the case, a harmonious reading of Rule 3 of the CCR, 04 read with Rule 6 and Rule 11 of the said Rules will suggest that eligibility / entitlement to credit has to be examined only at the time of receipt of input service and once it is found to be availed at a time when output service is wholly taxable, and the said credit is availed legitimately, the same cannot be denied and/or recovered unless specific machinery provisions are made in this regard. As per above TRU clarification dt.28.2.07, even if one assumed sale of immovable property after Completion Certificate to be "exempt service" even going by the findings in the impugned order, even then there is no legal requirement to reverse any credit availed on "input services" in the past (prior to obtaining Completion Certificate) at all. 17. The Ld. Counsel for the Appellants had also tried to compare the present position to on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the amount so refunded or credited: CENVAT credit in respect of invoice, bill or as the case may be, challan referred to in rule 9 issued before the first day of April 2011 shall be allowed, on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in Rule 9. Explanation -I The amount mentioned in this sub rule, unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the fifth day of the following month except for the month of March, when such payment shall be made on or before 31stMarch. Explanation -II If the manufacturer of goods or the provider of output service , fails to pay the amount payable under this sub rule , it shall be recovered , in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken. Explanation -III In case of manufacturer who avails the exemption under a notification based on the value of clearance in the financial year and service provider who is an individual or proprietor ship firm or part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any excisable goods, whether cleared for home consumption or for export or for payment of service tax on any other output service, whether provided in India or exported." From the above sub rule (4), it can be seen that even if an output service provider avail the credit and output service becomes exempted in such case the credit only in respect of inputs lying in stock or is contained in taxable service is required to be paid whereas there is no provision for payment of cenvat credit equivalent to the input services used in respect of exempted service. Therefore, the cenvat credit availed in respect of input service is not required to be paid back under any circumstances. 19. We accordingly hold that the Appellants were not legally required to reverse any Credit which was availed by them during the period 2010 till obtaining Completion Certificate, i.e. during the period when output service was wholly taxable in their hands, merely because later on, some portion of the property was converted into immovable property on account of receipt of Complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities. It was such basis which was adopted by the Appellants in availing only proportionate Credit after receipt of Completion Certificate. 23. Since we hold that the Appellants are not required to reverse any credit availed by them on valid input services availed during the period 2010 till obtaining of Completion certificate, the said amounts reversed by them under protest cannot be retained by the revenue authorities and have to be returned to the Appellants. The same was appropriated against the demand of 8%/10% of sale of immovable property after obtaining Completion Certificate, under Rule 6 of the CCR, 04 vide the impugned order. That while the Appellants were never required to reverse the same as well as the fact that such demand of 8%/10% itself is not sustainable for the reasons stated hereinabove, since the Appellants had maintained separate accounts anyway, the amounts paid under protest in the past required to be returned to the Appellants in accordance with law. 24. The specific questions framed in this regard therefore have to be answered as follows: a. For the above reasons, the Appellants are not liable to pay 8%/10% amount of value of service became exempted a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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