ITC attributable to taxable output not to be included in formula of determining ITC of exempted goods or services
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
The Relevant Text of the Order as follows :
10. The learned counsel for the appellant urges that cenvat credit of service tax paid amounting to Rs. 6,22,33,589/- (Rupees Six Crore Twenty Two Lakhs Thirty Three Thousand Five Hundred and Eighty Nine only) pertaining to various ‘common services’ used by them for trading and taxable activities, the appellant is eligible for proportionate credit, which bears to the taxable activity and the credit availed is in terms of the Cenvat Credit Rules.
10.1 Further the learned Commissioner have not considered the input credit register submitted with reply to the show-cause notice and have determined the amount of Rs. 6,22,33,589/- (Rupees Six Crore Twenty Two Lakhs Thirty Three Thousand Five Hundred and Eighty Nine only) from the details annexed to the rebate claim, which is incorrect.
10.2. So far cenvat credit on ITSS is concerned, appellant imports such service and also procures from the domestic area. Such procurement of software is wholly towards provision of taxable service under the head ITSS. Further appellants have maintained proper/separate record for purchase and sale of software and ITSS, and such credit is wholly availed against taxable ITSS service, as an output service. The said disallowance of availment and utilization of credit for ITSS is erroneous and fit to be set aside.
10.3 Further urged that learned Commissioner have erred in taking proportionate credit of common input service, specified in Rule 6(5) of Cenvat Credit Rules. The only condition specified in Rule 6(5) is that the specific service should not be exclusively used in or in relation to manufacture of exempted goods or providing of exempted services. Thus the amount of Rs. 4,97,59,337/- (Rupees Four Crore Ninety Seven Lakhs Fifty Nine Thousand Three Hundred and Thirty Seven only) being cenvat credit taken for specified input services under Rule 6(5) of Cenvat Credit Rules, is fully allowable and learned Commissioner have erred in making proportionate disallowance.
10.4. It is further urged that learned Commissioner have erred in determining the amount of Rs. 18,77,40,992/- (Rupees Eighteen Crore Seventy Seven Lakhs Forty Thousand Nine Hundred and Ninety Two only) as common input tax credit from the details annexed to the rebate claims, ignoring the cenvat credit register produced along with the reply to show-cause notice, has led to erroneous conclusion. Further the show-cause notice proposed to disallow 95% of the cenvat credit on the allegation that trading is non-taxable/exempted service. However, in the impugned order learned Commissioner has altogether taken a different stand, travelling beyond the show-cause notice.
10.5. So far the finding in the impugned order as to ‘invalid document’, 40 invoices is concerned, it is urged that the appellant is assessed to service tax for last several years and the audit team of the Department have already conducted the audit in review and verified the accounts, and process being followed by appellant for availing the cenvat credit. The audit team did not report any material deviation as to details maintained by appellant. Further as regards discrepancies in the invoices in a few instances, the appellants have reversed the credit with interest, under intimation to the Department. In spite of requests made by the appellant to learned Commissioner to provide a list of invoices objected to by Revenue, so as to clarify the objections but no such list was ever provided. The show-cause notice was also silent as to the particulars of invoices which are defective and such allegations are only by way of a vague and passing allegation.
10.6. He further urged that under the facts and circumstances, the appellants have properly followed the provisions of the Service Tax Law with Rules read thereunder and there is no case of any deliberate default, penalties imposed are fit to be set aside.
10.7. Further the appellant relies on the ruling in the case of IBM India Private Limited Vs. CCE, ST & Cus., Bangalore being Appeal No. ST/20741/2014-DB, wherein this Tribunal has held as follows:
“2. The learned counsel submits that Cenvat credit has been denied and demanded on the basis of calculations made by the Revenue. While making the calculations, the effort is to arrive at the amount to be reversed attributable to the trading activity of the noticee in respect of which cenvat credit is not admissible. While doing so, the services which have been used exclusively in providing dutiable services alone also have been taken into account for the purpose of calculation of the amount to be reversed. This is incorrect. If services were identifiable to have been used only for providing dutiable services exclusively, there is no need to reverse any portion of the credit on the basis of proportion of trading activity to the total turnover, or even for exempted services.”
The order of Tribunal has been accepted by the Department.
10.8 Reliance has also placed on the ruling in Superpacks Vs. CCE, ST and Cus., Bangalore (Final Order Nos. 22383- 22388/2017) wherein this Tribunal has interpreted the provisions of Rule 6(5) of Cenvat Credit Rules as follows:
“7.2. As regards the cenvat credit of the Service Tax paid on Management Consultancy Services, it is covered under Section 65(105)(r) of the Finance Act, 1994, I find that the provisions of Rule 6(5) of the Cenvat Credit Rules, 2004 are very clear which needs reproduction:
“(5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of whole 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.”
It can be seen from the reproduced provision that the said sub rule starts with a non-obstante clause which would mean that this sub-rule has to be read independently and it provides for availment of entire cenvat credit even if the same is used for manufacturing of dutiable and exempted goods and or providing taxable and exempted services. In my view, appellants have made out a case for availment of the entire cenvat credit of service tax paid on Management Consultancy Services as per the above reproduced sub-rule. To that extent the appeal filed by the appellant is allowed and the demands raised on this ground, the question of interest does not arise.”
10.9. Learned counsel further states that on similar allegations for the period 2015-16, the show-cause notice was issued which have been adjudicated vide O-I-O No. 30/2018 dated 28/03/2018 wherein the learned Commissioner have dropped the proceedings following the ruling of this Tribunal in IBM India (Pvt.) Ltd. (supra). Particularly mentioning in para 25.5, that this order in IBM of this Tribunal have been accepted in review by the Department on 03/07/2015. Learned Commissioner also took notice of the Notification No. 13/2016 dated 01/03/2016 where Rule 6 of Cenvat Credit Rules was re-drafted, particularly Rule 6(iii) which is as follows:
“(i) No credit of inputs or input services used exclusively in manufacture of exempted goods or for provision of exempted services shall be available;
(ii) Full credit of input or input services used exclusively in final products excluding exempted goods or output services excluding exempted services shall be available;
(iii) Credit left thereafter is common credit and shall be attributed towards exempted goods and exempted services by multiplying the common credit with the ratio of value of exempted goods manufactured or exempted services provided to the total turnover of exempted and non- exempted goods and exempted and non-exempted services in the previous financial year”
10.10 It is categorically held by the learned Commissioner that on a cogent reading of sub-rule (ii) and (iii) above, it is clear that input credit attributable to ITSS (which is a taxable output service) is not to be included in the formula of determining credit attributable towards exempted goods and exempted services. Learned Commissioner also observed that in view of the Budget Circular vide D.O.F No. 334/08/2016-TRU, stating that Rule 6 has been re-drafted with the intention of simplifying and rationalizing the Rule, without altering the already established principles of reversal of such credit, this only means that amendment to Rule 6 is clarificatory in nature and is retrospective in effect.
11. Learned AR for the Revenue has relied on the impugned order.
12. After considering the rival contentions, we find that the allegations in the present case for the period 2008-09 are similar to the allegations for the earlier period 2015-16, and further taking notice that now Revenue, taking notice of the substitution of Rule 6 vide Notification No. 13/2016, which is by way of clarification and ease of doing business and also in view of the ruling of this Tribunal in IBM India Pvt. Ltd. (supra), we hold that the issue is no more res integra and the same is held in favour of the appellant. Accordingly, we allow this appeal and set aside the impugned order. The appellant shall be entitled to consequential benefits including disposal of the rebate claim in accordance with law, if the same is still pending. In the alternative, if the rebate claims have been disposed of, the same shall be reconsidered, as required by way of consequential benefit to the appellant.
For Further Details – Read Order
Tags: Judgement, Appellant Tribunal
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