2015 (10) TMI 2544 - AT - Service Tax

Tribunal allows flexibility in cenvat credit payments, emphasizing annual compliance over strict monthly requirements.

The Tribunal ruled in favor of the appellant, emphasizing that Rule 6 (3) (c) of the Cenvat Credit Rules, 2004 does not explicitly require monthly payment ... CENVAT credit - service tax paid on the input services used in the provision of both taxable as well as exempted services - requirement of Rule 6 (3) (c) of the Rules complied with - excess cenvat credit, over and above the prescribed limit of 20% utilized by the appellant - Held that: - Where the service provider provides for both taxable as well as exempted service, sub-rule (2) of the said rules provides for maintenance of separate accounts. In the case, where no separate accounts have been maintained, clause (c) of sub rule (3) mandates that “the provider of output service shall utilize credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on output service”. It is not in dispute that the appellant had not paid 20% amount from its cenvat account towards the taxable output services. The case of the Department is that on monthly basis, this 20% calculation has to be done and the same should be paid from the cenvat account; and if any amount is paid over and above 20% during the particular month/period, the same is not in conformity with the statutory provisions, and thus, the assessee is required to pay the cenvat credit. There are no specific restrictions or prohibitions contained in Rule 6 of the Cenvat Rules, providing for reversal of cenvat credit on monthly/periodic basis. Rather, as per the statutory mandates, the amount of 20% has to be paid during a particular financial year, irrespective of the fact that in some months the amount paid is more and in other months, the payment is less. Payment in this manner will not be treated as irregular. The decision in the case of Idea Cellular Ltd. Versus Commissioner of Central Excise, Rohtak [2009 (2) TMI 91 - CESTAT NEW DELHI] relied upon where it was held that if during certain months, the credit utilization for payment of service tax was less than the 20% ceiling specified in Rule 6(3)(c) of Cenvat Credit Rules, 2002, the unutilized credit of those months has to be adjusted against utilization in excess of the 20% ceiling, in other months. Payment of amount by the appellant is in conformity with the provisions of Rule 6(3)(c) of the Cenvat Credit Rules, 2004 - demand of service tax, interest and penalty set aside - appeal allowed - decided in favor of appellant. Issues:1. Compliance with Rule 6 (3) (c) of the Cenvat Credit Rules, 2004 regarding payment of service tax.2. Interpretation of the requirement to pay 20% of service tax from the cenvat account on a monthly basis.3. Applicability of maintaining separate accounts for taxable and exempted services.Analysis:1. The case involved the appellant, engaged in providing taxable and exempted services, availing cenvat credit of service tax paid on input services. The Department objected to the excess utilization of cenvat credit beyond the 20% limit in a particular month, leading to proceedings and a confirmed service tax demand.2. The appellant argued that Rule 6 (3) (c) did not mandate monthly payment of 20% from the cenvat account and cited precedents to support their stance. The Department contended that monthly calculation and payment were necessary, which the appellant had not complied with. The Tribunal analyzed the rule's language and found no explicit requirement for monthly payments, emphasizing the annual compliance with the 20% limit, irrespective of monthly variations.3. Rule 6 of the Cenvat Credit Rules, 2004 addresses the obligations for service providers offering both taxable and exempted services. It mandates separate accounts for such services and limits cenvat credit utilization to 20% of the service tax payable on taxable output services. The Tribunal clarified that the rule did not specify monthly reversals of cenvat credit, focusing instead on the overall compliance within a financial year.4. Relying on the decision in Idea Cellular's case, the Tribunal supported the appellant's argument, emphasizing that the rule's silence on monthly utilization periods allowed flexibility in adjusting excess credit from certain months against future payments exceeding the 20% limit. Consequently, the Tribunal set aside the impugned order, ruling in favor of the appellant.This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the Tribunal's interpretation of the relevant rules and precedents to reach a decision in the appellant's favor.