2015 (11) TMI 1047 - AT - Service Tax

Tribunal grants appellant chance to rectify non-compliance by revising credit allocation for Jammu & Kashmir

Adecco Flexione Workforce Solutions Ltd. Versus Commissioner of Central Excise, Customs and Service Tax Bangalore-LTU

The Tribunal ruled in favor of the appellant, allowing them to rectify their non-compliance by submitting a detailed letter within 30 days to reverse the ... CENVAT credit - credit on exempted service - non maintenance of separate accounts - failure to exercise the option to avail the provisions of Rule 6(3A) in writing - Held that:- Commissioner’s conclusion in the impugned order that in view of the retrospective amendment to Cenvat Credit Rules, procedure followed by the assessee can be said to have fulfilled the requirement in my opinion is not correct. This is in view of the fact that amendments were carried out and benefit of payment of proportionate credit or Cenvat credit attributable to exempted goods and services was extended only to manufacturers and not to service providers - In this case there is no such ambiguity or lack of clarity in the amendments or Finance Act brought out in the year 2010. Therefore I am unable to consider this submission. The second conclusion the Commissioner has reached is that the omission or intention is only technical and reversal has been done as required under Rule 6(3) (ii) of the Cenvat Credit Rules 2004. In view of the amendment in 2010, once the amendment is not applicable, the benefit of subsequent reversal will not be available. The amendment brought out in the year 2010 clearly provided for subsequent reversals by the manufacturers where they had omitted to reverse the credit earlier and according to the law they would have been required to pay 6%/8%/10% as the case maybe. Option to avail the provisions of Rule 6(3A) in writing - Held that:- If we accept that even after 01.03.2008 that would be the situation, we will be rendering the provisions of Sub-rule (3A) of Rule 6 of CCR 2004 totally irrelevant and otiose. This cannot be the intention of the legislature. In such a situation applying the decision which was rendered prior to 01.03.2008 and taking a view that option can be exercised at any time or reversal can be made subsequently would be totally against the law as well as the intention of the legislature. The learned DR countered this by submitting that the fact that the explanation provides that it shall not be withdrawn during the remaining part of the financial year shows that it has to be exercised within the same financial year. However it is difficult to come to the conclusion that because of this particular clause, the explanation has to be understood to mean that option should be exercised within the financial year. - However it is difficult to come to the conclusion that because of this particular clause, the explanation has to be understood to mean that option should be exercised within the financial year. Services provided to SEZ units - Held that:- in respect of clearances to SEZ United Nations, there was no need for reversal of Cenvat credit or payment of the percentage of the amount prescribed under Rule 6(3) of Cenvat Credit Rules 2004. In view of the fact that Commissioner (Appeals) has already allowed benefit wrongly as held by me and further in view of the complexity of the nature, in my opinion as a special case, the assessee can be allowed to regularize the activity undertaken by them by submitting a detailed letter as contemplated in Sub-rule (3A) of Rule 6 of Cenvat Credit Rules. Whether it is rectifiable or not is another complicated question which in my opinion goes in favour of the assessee mainly because of the discussion given above and entire facts and circumstances of this case. Appellant would be eligible to reverse the proportionate credit attributable to clearances to Jammu & Kashmir State alone for the year 2008-09 subject to the condition that within 30 days from the date of this order they will file a letter rectifying the deficiencies in the letter of option given by them as contemplated in Rule 6(3A) of Cenvat Credit Rules 2004. - Decided in favor of assessee. Issues Involved:1. Compliance with Rule 6(2) and Rule 6(3) of Cenvat Credit Rules, 2004.2. Applicability of retrospective amendment to Cenvat Credit Rules by Finance Act, 2010.3. Treatment of services provided to SEZ units, Jammu & Kashmir, and United Nations.4. Validity of subsequent reversal of Cenvat credit.5. Interpretation of 'exempted services' under Cenvat Credit Rules.Issue-wise Detailed Analysis:1. Compliance with Rule 6(2) and Rule 6(3) of Cenvat Credit Rules, 2004:During scrutiny of ST3 Returns for 2008-09, it was observed that the appellant provided taxable services to SEZ units and in Jammu & Kashmir, which were exempted. As per Rule 6(2), the appellant was required to maintain separate accounts for input services used for taxable and exempted services. Rule 6(3) allowed the appellant to either pay 8% of the value of exempted services or reverse the proportionate Cenvat credit attributable to exempted services. The appellant did not follow these procedures, leading to a demand for Rs. 14,50,720/-.2. Applicability of Retrospective Amendment to Cenvat Credit Rules by Finance Act, 2010:The Commissioner (Appeals) set aside the demand, considering the retrospective amendment by the Finance Act, 2010, which allowed for the reversal of proportionate credit. However, the Tribunal held that this amendment applied only to manufacturers and not to service providers, thus rejecting the appellant's claim that the omission was merely technical and that the reversal done in June 2009 was sufficient.3. Treatment of Services Provided to SEZ Units, Jammu & Kashmir, and United Nations:The Tribunal acknowledged that services provided to SEZ units and the United Nations should not be considered exempted services, thus not requiring reversal of Cenvat credit. However, services provided in Jammu & Kashmir were considered exempted services under Rule 2(e) of Cenvat Credit Rules, which includes services on which no service tax is leviable under Section 66 of the Finance Act.4. Validity of Subsequent Reversal of Cenvat Credit:The Tribunal noted that prior to 01.03.2008, several decisions allowed subsequent reversal of credit to be considered as non-availment. However, post-amendment, Rule 6(3A) provided a detailed procedure for reversal, and subsequent reversal without following this procedure would render the provisions of Rule 6(3A) irrelevant. The Tribunal held that the appellant's subsequent reversal did not comply with the required procedure.5. Interpretation of 'Exempted Services' under Cenvat Credit Rules:The appellant argued that services provided in Jammu & Kashmir should not be considered exempted as per Section 64 of the Finance Act. The Tribunal disagreed, stating that the definition of 'exempted services' includes services on which no service tax is leviable, thus covering services provided in Jammu & Kashmir.Conclusion:The Tribunal allowed the appellant to regularize their activities by submitting a detailed letter as per Rule 6(3A) within 30 days, rectifying deficiencies in their earlier submissions. The appellant was eligible to reverse the proportionate credit attributable to clearances to Jammu & Kashmir alone for 2008-09, provided they complied with this condition. The Tribunal's decision emphasized the importance of adhering to procedural requirements and clarified the scope of exempted services under the Cenvat Credit Rules.