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TMI Blog2019 (5) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... under Rule 2(l) ibid. Applicability of Rule 6 of CENVAT Credit Rules, 2004 - major service provided by the appellant i.e. providing/ imparting education is exempted service - HELD THAT:- Undisputedly appellants have not followed the procedure prescribed for availing the options provided under Rule 6(3A) of the CENVAT Credit Rules, 2004, to the extent that they have not filed any intimation to the Range Superintendent, with the prescribed particulars for availing the second option of reversal of the credit determined on proportionate basis. However appellants have claimed that during the relevant period they had reversed the CENVAT Credit attributable to exempted services. From the perusal of the various charts available the errors/ mistakes in depicting the amounts reversed while filing the ST-3 returns appear to b quite obvious. However we are not in position to verify the correction of the same. If it is factually the case of appellant that they had been reversing the credit under Rule 6(3)(ii) but had erroneously not shown the said bifurcation in the ST-3 returns, the failure of the appellants just not to claim the said option at the start of Financial Year by filing the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act, 1994. They are also providing non taxable/ exempted services (education services). 2.2 Appellants while providing the services took the CENVAT Credit of Service Tax paid various input services. These input services were used for providing both taxable and non taxable/ exempted services. Since appellant were not maintaining the separate account for input services used for providing taxable and non taxable/ exempted services as mandated by Rule 6(2) of CENVAT Credit Rules, 2004, they were required to follow the procedure as prescribe rule 6(3) ibid and reverse the credit attributable to the input services used for providing non taxable/ exempted services. 2.3 Show Cause Notice dated 08.04.2011, 18.10.2011 and 14.03.2012 have been issued to the appellant, seeking to deny them the credit of common input services taken by them during the periods October 09 to March 10, April 10 to September 10 October 10 to March 11. 2.4 These show cause notices have been adjudicated. The show cause notice dated 08.04.2011 was adjudicated by the Additional Commissioner Service Tax Mumbai- II an taken in appeal before by the Appellants before Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services has been disallowed stating that the input services were not used for providing the output services. vi. The aforesaid input services are directly or indirectly used in providing the output services and as per the principles laid down by Hon ble Bombay High Court in case of Coca Cola India Pvt Ltd [2009 (242) ELT 168 (BOM)} and various other decisions the credit should not have be disallowed. vii. A large portion (₹ 73,29,468/- out of ₹ 92,43,375/-) of the credit disallowed is in respect of services specified in Rule 65) and is eligible to be considered as input services as long as they are not used in admittedly exempted output services. viii. On application of principles underlined in Rule 6(3A)- Option II, the CENVAT Credit taken by them meets or comes within the parameters of the said Rule and impugned proceedings need to be set aside. ix. Since the issue is a bonafide interpretational issue penalties are required to be set aside by invoking Section 80. 3.3 Arguing for the revenue learned authorized representative while reiterating the impugned order submitted that appellants a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned orders, appeal and the submissions made during the course of arguments of appeal. 4.2 Issue for consideration before us can be summarized as follows: i. Whether the CENVAT Credit in respect of various input services availed by the appellant is admissible to them? ii. Whether the appellants can be allowed the benefit of Rule 6(3) Option II, when they have not followed the procedure as laid down by the said rule. iii. Whether penalties under Section 76 and Section 77 of The Finance Act, 1994 justified upon the appellants? 4.3 Undisputed facts are that Appellants are reputed Technical Institute, engaged in providing technical education. Apart from providing technical education they are engaged in research and also are providing technical consultancy services. While the services of education and research are non taxable / exempted from payment of service tax, technical consultancy services are taxable and are covered by the definition as provided by Section 65 (105)(za) of Finance Act, 1994. Appellants are registered as provider for the said taxable services. They are paying the service tax in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. As explained above, the equipments being crucial part of consultation services the said services are directly used for providing output services. The credit taken relates mainly to service tax paid on commitment charges recovered by State Bank of India. 3. Consulting Engineer s Service This Service is also used in relation to construction of buildings and therefore is a service in relation to infrastructure for the purpose of providing scientific consultation service and as such, is regarded as input service. The category is also covered under Rule 6(5). 4. Maintenance or Repair Services These services are required by the Noticee for the upkeep and maintenance of various equipments including computer hardware, software, other various technical equipments, laboratory equipments instruments as well as the infrastructure such as elevators, EPABX systems in various buildings and again a service being covered under Rule 6(5) qualified to be input service. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous jobs on the campus. The invoices are issued by suppliers of labour for various jobs on the campus. Since the said labour is used for various general purposes and IIT being a Government agency being debarred from employing Class IV employees on its own payroll, the services of skilled and unskilled labour is obtained through contractors. The said services being indirectly used for business activity of the Institute, it is input service. 11. Chartered Accountant Services These services are obtained for audit and other tax advisories. The illustration of these services being part of the definition of Rule 2(l), the service is undoubtedly used for the business purpose and therefore are input services. 12. Event Management Services The faculties of the Institute often participate in various seminars, workshops or conferences. This being a constant process for all academicians and researchers. It is an essential input service. For imparting its consultancy services, they are treated as input services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availed Cenvat Credit in contravention of Rule 2(l) of CCR 2004. M/s. IIT in their reply has dwelt in length and cited several case laws in respect of the input services being within the scope of the definition of input service under Rule 2(l). Upon a plain reading of Rule 2(l) of CCR, 2004 as given above, it is seen that Cenvat Credit is allowable to a manufacturer of final product irrespective of whether input service is used directly or indirectly in or in relation to the manufacture of final product. But in case of a service provider credit is allowable only on those input services which are used for providing a taxable output service as is apparent from a combined reading of Rule 6(1) of CCR, 2004 with Rule 2(e). Thus where the input and output are both services i.e. input service is used for providing output service there has to be a direct nexus between the two for claiming Cenvat Credit. Thus in the case of the Noticee for input services to be eligible as inputs under Rule 2(l) of CCR, 2004 it needs to be established that they have been used for the provision of the taxable output service viz. STC. 24.1 Relying upon the words in relation to appearing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2). Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. (2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces; (v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition; (b) the manufacturer of goods or the provider of output service shall, determine and pay, provisionally, for every month,- (i) the amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, denoted as A; (ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services (provisional)= (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the preceding financial year and D denotes total CENVAT credit taken on inputs during the month minus A; (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turer of goods or the provider of output service, shall, in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four per cent. per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date; (f) where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount; (g) the manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per condition (d) and (f) respectively, the following particulars, namely:- (i) details of CENVAT credit attributable to exempted goods and exempted services, monthwise, for the whole financial year, determined provisionally as per condition (b), (ii) CENVAT credit attributable to exempted goods and exempted services for the whole financial year, determined as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NVAT credit wrongly taken. . (4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year. (5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services. 4.8 Commissioner has in para 22.3, 22.4 22.5 recorded as follows: 22.3 Rule 6 of the CCR, 2004 lays down the obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. According to this rule Cenvat Credit shall not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts mentioned in sub-rule 3 3(a) unless specified otherwise are payable on or before the 5th of the following month except for the month of March when the due date is 31st March. If the service provider fails to pay the amount, it is recoverable in the manner as provided in Rule 14 of CCR, 2004. 22.4 There have been some changes with effect from 01.04.2011 as far as the above provisions are concerned. In case of a service provider providing both exempted and dutiable services, the service provider has four option with effect from 01.04.2011: (a) Maintain separate inventory and accounts of receipt and use of inputs and input services used for exempted goods/exempted output services Rule 6(2) of Cenvat Credit Rules. (b) Pay amount equal to 5% of value of exempted goods and exempted services Rule 6(3)(i). (c) Pay an amount equal to proportionate Cenvat credit attributable to exempted final product/exempted output services, as provided in rule 6(3A) Rule 6(3)(ii) of Cenvat Credit Rules. (d) Maintain separate accounts for inputs and pay amount as determined under rule 6(3A) in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g aware of the legal requirements (as they have been receiving SCN s since 2008), the Noticee has failed to meet its obligation as under: The Noticee has not exercised any option under Rule 6(3A) of The CENVAT Credit Rules, 2004, by intimating in writing to the jurisdictional superintendent giving the particulars as specified under the aforesaid rule nor have stated any date from which the option under said rule was exercised or was proposed to be exercised. The Noticee has not given details of CENVAT Credit on input services lying in balance as on date of exercising the option, for the obvious reason that the Noticee failed to exercise the option. The Noticee failed to determine and pay, provisionally, for every month, the amount attributable to input services used for provision of exempted services and determine finally the amount of CENVAT credit attributable to exempted service for the whole financial year in the manner specified in the said rule. The Noticee, on account of the aforesaid failures, also failed to pay an amount equal to the difference between the amount provisionally paid from time to time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n taken of service tax paid on services which qualify to be input services as per definition provided under the said Rules. Thereafter, the question of claiming any credit in terms of Rule 6(3) would arise only when they maintain separate record in respect of input services used for providing nontaxable services and also show to the department at least now, that they have not taken credit on such input services. The other option regarding reversal of credit attributable to input services used for providing exempted/ non-taxable services is also not available to the Noticee as they have miserably failed even remotely showing compliance to the provisions of Rule 6(3A). As regards their claim of credit under Rule 6(5) ibid too, they have not been to show that input services of the categories specified under this sub-rule have not been exclusively used for providing non taxable/ exempted services. The requirements of CCR are substantive in nature and Cenvat Credit availed by not complying with legal obligations entails attendant consequences. The Apex Court in the case of Indian Aluminium Company Ltd Vs Thane Municipal Corporation 1991 (55) ELT 454 (SC) has clearly held that non observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total CENVAT Credit availed Ratio of amount paid under 6(3) (ii) Specified under 6(5) Other than 6(5) A B C D E=C-D F=B+E G=D/C* 100 Apr-Sep 10 2793809 3748793 3523865 2,24,928 30,18,737 94.00 Oct-Mar 11 4535659 10701646 10154426 5,47,220 50,82,879 94.89 Apr-Sep 11 0 12036760 10895001 11,41,759 11,41,759 90.51 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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