Appellant granted CENVAT credit for input services allocated based on turnover ratio. Tribunal rules in favor.

The appellant was found entitled to CENVAT credit for input services allocated to departments providing both taxable and exempted services based on turnover ratio. The Tribunal held that the appellant complied with Rule 6(2) of the CENVAT Credit Rules, 2004, and that the Revenue's disallowance of the entire credit allocated to the exempted service department was unreasonable. No penalty was imposed on the appellant, and the matter was remanded to the Adjudicating Authority for verification and mathematical accuracy of credit allocation. The appellant succeeded on the penalty issue and the merits of the case.

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Issues Involved:
1. Entitlement of CENVAT credit for input services allocated to departments providing taxable and exempted services.
2. Compliance with Rule 6(2) and Rule 6(3) of the CENVAT Credit Rules, 2004.
3. Proportionality of credit allocation and its verification.
4. Imposition of penalty.

Issue-Wise Detailed Analysis:

1. Entitlement of CENVAT Credit for Input Services Allocated to Departments Providing Taxable and Exempted Services:
The core issue in this appeal is whether the appellant is entitled to CENVAT credit of service tax paid on input services availed by service departments when such services are allocated to departments providing both taxable and exempted services. The appellant argued that the input services received by departments listed in Table-C were allocated to departments in Table-A (providing taxable services) and Table-B (providing exempted services) based on turnover ratio. The appellant reversed the CENVAT credit allocated to the exempted service department (Table-B), which was not disputed by the Revenue.

2. Compliance with Rule 6(2) and Rule 6(3) of the CENVAT Credit Rules, 2004:
The Revenue contended that the appellant should comply with Rule 6(3) of the CENVAT Credit Rules, 2004, which mandates either maintaining separate accounts or paying a specified amount for exempted services. The appellant, however, maintained that it complied with Rule 6(2) by maintaining records that enabled the allocation of CENVAT credit proportionately. The Tribunal observed that Rule 6(3) contains an overriding provision independent of Rule 6(1) and Rule 6(2), and that the appellant's conduct indicated compliance with Rule 6(2).

3. Proportionality of Credit Allocation and Its Verification:
The Tribunal noted that the appellant had clearly demarcated the extent of credit allocable to departments in Table-A (taxable services) and Table-B (exempted services). The Revenue's disallowance of the entire CENVAT credit of Rs. 1,11,07,075/- based on the allocation to the exempted service department was deemed unreasonable. The Tribunal emphasized the principle of proportionality, stating that disallowing the entire credit was contrary to this principle. The matter was remitted to the Adjudicating Authority to verify the appellant's allocation of credit and ensure the mathematical accuracy of the exercise.

4. Imposition of Penalty:
The Tribunal found no grounds to question the appellant's conduct and, therefore, ruled that no penalty should be imposed. The appellant succeeded fully on the issue of penalty.

Conclusion:
The appeal was remanded to the Adjudicating Authority to verify the allocation of CENVAT credit and ensure its mathematical accuracy. The appellant succeeded on the issue of penalty and on the merits of the case, with the Tribunal directing a reasoned and speaking order after granting a reasonable opportunity for a hearing.

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