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TMI Blog2024 (2) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants was allowed to maintain separate accounts for the receipt and use of input services, used (i) for the provision of exempt services and (ii) for the provision of output services excluding exempt services , and take credit of input services used in the provision of taxable output services other than the exempt services , which is independent of the optional provision under Sub-rule (3) of Rule 6 ibid. It is found from the records that the appellants have provided for various periods the list of projects/sites/contracts which are taxable services and exempt services besides the trading activity and the month-wise Cenvat credit involved in input services vide their letter 24.02.2014 addressed to the department in replying to the audit objections raised in this regard - it cannot be said that not even single piece of evidence was submitted by the appellants regarding the nature of projects and did not maintain separate accounts for the exempt services taxable services, as held by the original authority in the impugned orders. Inasmuch as the Cenvat credit amount relating to exempt services/projects, taxable services/projects and trading activity, having been separately a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final product that are exempted, and subsequently makes a debit entry in respect of exempt final product, then this debit entry would make such credit entry stand deleted in the accounts of the assessee, maintaining that in effect no Cenvat credit was taken in respect of exempt final products - Further, in view of the above judgement of the Hon ble Apex Court, it could be concluded that the reversal of Cenvat credit in respect of common input services by the appellants is sufficient for compliance with the Cenvat Credit Rules, 2004. There are no merits in the impugned orders passed by the learned Commissioner, Nagpur in confirmation of the adjudged demands in the impugned orders in terms of Cenvat Credit Rules, 2004 and accordingly the same is set aside - Since the confirmation of the demands cannot be sustained under Rule 6(3) ibid, the demand for interest and imposition of penalty in the impugned orders also need to be set aside. The impugned orders dated 24.02.2017 and 20.12.2017 cannot be sustained and are set aside - Appeal allowed. - MR. S.K. MOHANTY, MEMBER (JUDICIAL) AND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; they maintain separate project wise accounts and accounted the Cenvat credit related to projects and their headquarters office (HO) separately; in respect of inputs services related to multiple projects, they have segregated the same by apportioning the common input Cenvat credit based on the turnover of the exempted and taxable projects, at their HO. The appellants had subsequently reversed that portion of Cenvat credit availed by them on the common input services, which was attributable to the common input services used for providing exempted services, for a total amount of Rs.1,04,52,325/- under protest on various dates and informed the same to the Department. 2.3 However, the Department did not accept these submission of the appellants and accordingly, show cause proceedings were initiated on the ground that the appellants were not allowed to take Cenvat credit on such quantity of input services which are used in or in relation to the provision of exempted services, under Rule 6(1) of the Cenvat Credit Rules, 2004, except in circumstances mentioned in Sub rule (2) to Rule 6 ibid, whereby the appellants are required to maintain separate accounts for the receipt and consumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of common input services amounting to Rs.3,40,41,460/- (Rs. 2,55,23,958/- for FY 2011- 12 to FY 2014-15 and Rs. 85,17,502/- for FY 2015-16) received by the appellants, the amount of Cenvat credit of Rs.1,99,92,125/- (Rs. 1,50,71,633/- for FY 2011-12 to FY 2014-15 and Rs.49,20,492/- for FY 2015-16) had not been availed by the appellants at the outset; and Rs.1,40,49,355/- (Rs. 1,04,52,325/- for FY 2011-12 to FY 2014-15 and Rs. 35,97,010/- for FY 2015- 16) which had been availed initially, was subsequently reversed by the appellants and the same was communicated to the Department under the cover of letters dated 23.01.2015, 23.09.2015, 27.10.2015 and 31.10.2015 along with copies of the journal vouchers, evidencing such reversals of Cenvat credit. Therefore, he submitted that the appellants had not availed any Cenvat credit whatsoever in respect of common services, as alleged in the show cause and the adjudication proceedings. 3.2 In support of their stand, Learned Advocate has relied upon the following case laws, to state that the provisions of Rule 6(3)(i) of Cenvat Credit Rules, 2004, cannot be foisted on the appellants by the Department, as these can be availed at the option o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... option given under Rule 6(3)(i) ibid, which is free from any conditions attached thereto, is the proper procedure to be followed by the appellants and the Revenue is within it s right to recover the ineligible Cenvat credit and as such the impugned orders are legally sustainable and the appeals filed by the appellants are required to be dismissed. 5. Heard both sides and perused the records of the case and the additional paper books filed by both sides. 6. The issues that require our consideration, in brief, are as below: (i) whether the appellants have availed credit of input services used in the provision of exempted services; and whether the appellants have maintained separate accounts of the same in terms of the Cenvat Credit Rules, 2004; (ii) whether the appellants had incorrectly availed and utilised CENVAT credit; and if so, in such case, the reversal of credit claimed by the appellants would suffice in the facts and circumstances of the case; (iii) whether the appellants are liable to pay the amounts demanded along with interest and penalty under the said two impugned orders. 7. In order to appreciate the various issues relating to availment of Cenvat cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b). (3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow any one of the following options, as applicable to him, namely: (i) pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services; or (ii) pay an amount as determined under sub-rule (3A); or (iii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment: Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable under clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r alia provides that if input services are used for provision of output services which are chargeable to tax as well as exempted services, then separate accounts are to be maintained for receipt and use of input services and the provider shall take credit only on input services used for dutiable output services. 8.2 Rule 6(3) of the Cenvat Credit Rules, 2004 is relevant for the purpose of this case and it is a not withstanding clause; this sub-rule specify that notwithstanding the provisions contained in the sub-rule (1) and (2) of Rule 6, the provision of Rule 6(3) would apply to the effect that a provider of output services who opts not to maintain separate accounts, as required under Rule 6(2), should follow any one of the options provided under Clauses (i) to (iii) there under, as applicable to him. Clause (i) provides for the option of paying an amount equal to prescribed percentage of the value of the exempted services. In this regard, we find that the Hon ble High Court of Bombay in the case of Indoswe Engineers Private Limited Vs. Union of India 1989 (41) E.L.T. 217 (Bom.) had explained about the effect of notwithstanding clause and the relevant paragraph of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvat credit by reducing the compliance burden and associated litigations, even though this is not applicable to the case in hand. 8.5. From the above analysis of the legal provisions of Rule 6 ibid, as it stood during the relevant time of the disputed period (prior to the amendment brought w.e.f. 01.04.2016), we find that the appellants was allowed to maintain separate accounts for the receipt and use of input services, used (i) for the provision of exempt services and (ii) for the provision of output services excluding exempt services , and take credit of input services used in the provision of taxable output services other than the exempt services , which is independent of the optional provision under Sub-rule (3) of Rule 6 ibid. 8.6. We also find that several exemption entries were provided under Notification No. 25/2012-Service Tax dated 20.06.2012, extending full exemption from payment of service tax on the following: 12A. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of (a) a civil str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble projects, which have not been taken and the Cenvat credit relating to taxable projects, which they have taken was provided along with the figures provided in their periodical ST-3 returns and reconciliation of those figures were also explained in the said letter dated 24.02.2014. From the above facts, we find that it cannot be said that not even single piece of evidence was submitted by the appellants regarding the nature of projects and did not maintain separate accounts for the exempt services taxable services, as held by the original authority in the impugned orders. Inasmuch as the Cenvat credit amount relating to exempt services/projects, taxable services/projects and trading activity, having been separately accounted for in the books of accounts by the appellants, it can be concluded that the appellants have satisfied the requirement of maintaining separate accounts for receipt and use of input services in terms of the Cenvat Credit Rules, 2004. 8.7. We also find that our above views have been duly supported by the Coordinate Bench of this Tribunal who had examined the issue of the admissibility of Cenvat credit in similar cases where the inputs and/or input services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le (3) are complied with, the provisions of Sub-Rule (1) and (2) will not be applicable; sub-Rule (3) clearly provides that if the provider of output service does not opt to maintain separate accounts, he should comply with the provision of Rule 6(3)(c) of the said Rules; (iii). Reversal amounts to non availment of credit (iv). It is not open for the revenue to thrust upon the assessee the choices available under Sub-Rule (3) (v). It is not the intention of the legislature to demand huge amounts of credit disproportionate to the credit availed on exempted goods. We find that the department has heavily relied upon the judgment of Mumbai High Court in the case of Nicholas Piramal (Supra). It can be seen that the judgments cited above are subsequent to this judgment and are of recent period. The decision of Principal Bench in the case of M/S Agrawal Metal Works Pvt Ltd (supra), flowing the decision of Hon ble High Court of Telangana in the case of Tiara Advertising (supra), being the latest. It appears that Courts and Tribunals were consistent in following the principles listed above. Therefore, we are of the considered opinion that these judgments are to be fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned adjudicating authority is that the certificates given by the Manpower Recruitment Agency in respect of Axiom Cordages Ltd are verbatim to the end and do not disclose any details. In this context also, the learned adjudicating authority has not thought it fit to call upon the persons issuing certificates and to record the submission before proceeding to adjudicate the case. We find that in the absence of any enquiry, verification or examination of the persons concerned, the conclusion drawn by the learned adjudicating authority do not sustain the scrutiny of law. For the reasons discussed above, we find that impugned orders are not sustainable. 26. Moreover, the judgments cited above, held that reversal of credit availed on inputs and services used exclusively in the manufacture of exempted goods or provision of exempted services, would tantamount to not availing credit. Learned adjudicating authority has recorded the fact of reversal of proportionate credit by the appellants. However, in the case of M/s Axiom Cordages Ltd., he gave the finding that it is not clear from submissions of the appellant as to when such reversal was made and also as to whether the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit, we find from the facts of the case that the appellants have produced to the department complete details of Cenvat credit of taxable, exempt services and trading activity for various periods; non-availment of Cenvat credit in respect of exempt projects/services duly correlating the figures with the periodical ST-3 returns data. Further, the appellants have also submitted the details of Cenvat credit involved in respect of common input services which was subsequently reversed by the appellants by communicating the same to the Department along with copies of the journal vouchers, evidencing such reversals of Cenvat credit. It is also a fact that from the initial stage when audit objection was raised, the appellants have submitted various replies providing complete details to the department by various letters dated 24.02.2014, 16.09.2014, 14.11.2014, 23.01.2015, 23.09.2015, 27.10.2015, 31.10.2015, 21.06.2016 and 15.12.2016, as detailed in the appeal papers filed by the appellants. It is not the department s case that the Cenvat credit taken in respect of taxable services/projects and those Cenvat credit not taken in respect of exempt projects are incorrect, in terms of any specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the duty paid on the inputs were entered in a register which had to be maintained statutorily recording the amount of credit allowable to the manufacturer. 4 . The problem in this case arose because, some of the goods manufactured by the appellants were exempted from duty by Notification No. 69/86-C.E., dated 10th February, 1986. This notification was amended by a further notification No. 106/88, dated 1st March, 1988 by which copper winding wires were exempted from payment of the whole of the duty subject to the condition that the final products were manufactured from copper wire bars of over 6 mm and also subject to the stipulation that - (b) No credit of the duty paid on goods (a) (ii) above, used in their manufacture, has been taken under Rule 57A of the said Rules. There is no dispute that the inputs which were utilised in the manufacture of the copper wires were duty paid and that the amount of duty paid on the inputs had been entered by the appellants to their credit in the ledger which has to be maintained under the Excise Rules. The credit amount can be utilised by the manufacturer towards payment of duty of excise leviable on the final products. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products. This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products. 7 . In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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