Cenvat credit on common services is limited to taxable use, and penalties under sections 76 and 78 cannot run together.

Cenvat credit on common maintenance and repair services was treated as admissible only to the extent those services were used for providing the taxable output service, so credit was restricted to the area actually used for renting of immovable property and the balance was held inadmissible. On penalty, the reasoning recognised that where the demand is confined to the confirmed credit disallowance, penalty must follow that footing, but penalties under sections 76 and 78 cannot operate simultaneously after the relevant amendment. The corresponding penalty under section 78 was sustained, while separate penalty under section 76 was not to be applied concurrently.

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Issues: (i) whether Cenvat credit on common maintenance service was admissible in full or was restricted to the portion relatable to the area used for providing the taxable output service; (ii) whether penalty under sections 76 and 78 could be sustained on the facts of the case.

Issue (i): whether Cenvat credit on common maintenance service was admissible in full or was restricted to the portion relatable to the area used for providing the taxable output service.

Analysis: The credit was claimed in respect of maintenance and repair services connected with premises used for renting of immovable property. The adjudicating reasoning proceeded on the basis that input service credit is available only to the extent the service is used for providing the output taxable service. Since the disputed portion of the premises was not used for the taxable output service beyond the area actually let out, credit could not extend to the entire premises. The amount admissible had already been worked out in the show cause notice and the lower authorities had not exceeded that proposal in substance.

Conclusion: The credit was correctly restricted to Rs. 17,982, and the balance credit was inadmissible.

Issue (ii): whether penalty under sections 76 and 78 could be sustained on the facts of the case.

Analysis: In view of the restricted credit position indicated in the notice and the finding that the assessee was not entitled to the balance credit, the penalty had to be tested on the same footing. The reasoning also recognised that penalty under both provisions could not be simultaneously imposed after the amendment governing section 78. The order therefore sustained only the penalty linked to the confirmed demand.

Conclusion: Penalty under section 78 was sustained, and separate penalty under section 76 was not to operate simultaneously.

Final Conclusion: The appeal failed on merits, with the restricted credit demand and the corresponding penalty being upheld.

Ratio Decidendi: Cenvat credit on input services is admissible only to the extent those services are used for providing the taxable output service, and penalty under sections 76 and 78 cannot both be imposed simultaneously where the statutory scheme does not permit it.

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