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Issues: (i) whether, prima facie, credit under the Cenvat Credit Rules was available on the full amount of service tax paid on commission and insurance attributable to composite turnkey contracts, and (ii) whether invocation of the extended period was prima facie sustainable when the credit had been disclosed in ST-3 returns.
Issue (i): whether, prima facie, credit under the Cenvat Credit Rules was available on the full amount of service tax paid on commission and insurance attributable to composite turnkey contracts.
Analysis: Credit under Rule 3 is available only in respect of tax paid on input service received for providing output service. Where the contract for supply of material is separate, the service used for executing that contract cannot prima facie be treated as a service used in providing the taxable output service. A reading of Rule 3 with Rule 6 indicated prima facie support for the departmental view that the credit had to be restricted to the service element relatable to output service.
Conclusion: Prima facie, the claim for full credit on commission and insurance was not accepted.
Issue (ii): whether invocation of the extended period was prima facie sustainable when the credit had been disclosed in ST-3 returns.
Analysis: The details of credit taken had been reported in the ST-3 returns, which prima facie supported the plea that extended limitation was not available. On that basis, the demand confined to the normal period was treated as substantially limited.
Conclusion: Prima facie, the objection to invocation of the extended period was accepted.
Final Conclusion: The appeal was admitted on a pre-deposit of Rs. 30 lakhs and, subject to that deposit, recovery of the balance dues was stayed during pendency of the appeal.
Ratio Decidendi: Cenvat credit on services connected with a separate supply contract is not prima facie available as input service for the taxable output service, and disclosure of credit in statutory returns can prima facie negate the extended period.
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