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TMI Blog2019 (2) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... was a gap in the law during the relevant period inasmuch as one could have availed complete credit of the common inputs and input services which are used in providing taxable services and not activities which do not amount to service at all and the assessee could have used only a small fraction of common inputs/ input services in providing taxable services and rest in activities which do not amount to service at all and still would have been entitled to full credit of the tax paid. This was rectified by insertion of explanation (3) to Rule 6(1) with effect from 01.4.2016 vide notification 13/2016-CE (NT) dated 01.3.2016. During the relevant period Rule 6(1) did not provide for reversal of CENVAT credit in respect of input services used both in provision of taxable services and for activities which do not amount to service. Appeal allowed - decided in favor of appellant. - E/30719/2018 - A/30227/2019 - Dated:- 14-2-2019 - Mr. P. Venkata Subba Rao, Member (Technical) Shri P. Venkat Prasad, Chartered Accountant for the Appellant. Shri Mir Anwar Mohiuddin, Asst. Commissioner/AR for the Respondent. ORDER Per: P.V. Subba Rao. 1. This appeal is file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of this rule, exempted services as defined in clause (e) of Rule 2 shall include an activity, which is not a service as defined in Sec. 65B (44) of the Finance Act, 1994. 3. It was the contention of the appellant that since the relevant period is prior to introduction of this explanation in the rule, they are not covered by the same. Agreeing with the appellant s contention the original authority dropped the demand. 4. Aggrieved, the department filed an appeal before the first appellate authority who, vide the impugned order, allowed the appeal of the department and directed the recovery of ₹ 11,23,424/- along with interest. Hence this appeal. 5. Learned Chartered Accountant for the appellant submits that prior to the introduction of this explanation (3) in Rule 6 there was no provision to recover proportionate amount of CENVAT credit in respect of common input services which was used in providing taxable as well as in activities which do not amount to service in terms of Sec. 65B (44). Secondly, he would argue that the first appellate authority has relied on the legal provisions of Rule 2(l) Rule 3 of the CENVAT Credit Rules, 2004 also and held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were not used in provision of taxable output services is against well-recognized legal principles of CENVAT credit scheme. Credit can be taken only if the final product/output service is taxable. It is intended to mitigate the burden of tax on input/input service used in taxable output services. It is not intended to unjustly enrich any provider of output services. A provider of taxable and exempted services is required to comply with the statutory obligations provided under Rule 6 of CCR, 2004. As provided under Rule 6(1) of CCR, 2004 credit of tax paid shall not be allowed on such inp8ut services which were used for provision of exempted services except in specified circumstances. Rule 6(2) of CCR, 2004 has, accordingly, provided that a service provider in such circumstances shall maintain separate accounts for receipt, consumption and inventory of the input services meant for use in providing output service and take credit thereon. Indisputably, the respondents had used certain common input services in relation to construction of the residential flats which were sold after obtaining occupancy certificates. In terms of section 66E(b) of the Act, 94 such transaction of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004 which was the same prior to and after the insertion of the subject explanation. 7. He would therefore argue that the explanation (3) to Rule 6(1) introduced with effect from 01.4.2016 is merely a clarification of the legal position which already existed which was that nobody is entitled to credit of inputs or input services unless they are used for provision of taxable services. Therefore the appeal may be dismissed and the impugned order may be upheld. 8. I have considered the arguments on both sides and perused the records. The show cause notice was issued seeking reversal of CENVAT credit under Rule 6 holding that the input services were used both for provision of taxable services and also for activities which do not amount to service under Sec. 65B(44) of the Finance Act, 1994. Rule 6 required reversal of proportionate amount of CENVAT credit wherever the input services or inputs were used both for provision of taxable as well as exempted services. There was no provision during the relevant period for reversal of credit where common inputs or input services were used for provision of taxable services and also activities which do not amount to services at all. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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