2009 (2) TMI 91 - AT - Service Tax

Tribunal exempts services under Cenvat Credit Rules, 2004, excludes certain credits. Penalties waived.

The Tribunal determined that the services provided were classified as 'exempted services' under Rule 2(e) of the Cenvat Credit Rules, 2004. It held that ... Exempted services (as defined in rule 2(e) of the Cenvat Credit Rules, 2004) - restriction on utilization of Cenvat credit - rule 6(3)(c) (20 per cent ceiling) - capital goods Cenvat credit exception - rule 6(4) - special dispensation for 17 input services - rule 6(5) - Board circulars as departmental instructions and their binding effect - limitation for recovery of wrongly taken credit - proviso to section 73(1) of the Finance Act, 1994 - penalty under rule 15 of Cenvat Credit Rules, 2004 read with section 78 of the Finance Act, 1994Exempted services (as defined in rule 2(e) of the Cenvat Credit Rules, 2004) - inter-connectivity service / network access / infrastructure use service - Whether inter-connectivity, roaming and infrastructure use services provided by the appellant fall within the definition of 'exempted services' under rule 2(e) and thereby attract the applicability of rule 6(3)(c). - HELD THAT: - The definition of 'exempted services' in rule 2(e) expressly includes services on which no service tax is leviable under section 66 of the Finance Act, 1994. The services in question were not taxable during the period of dispute; accordingly they fall within the scope of 'exempted services.' The Tribunal rejected the appellant's contention that network access or inter-connectivity is subsumed in the telephone service of the originating provider, holding instead that providing access/inter-connection to another provider is a distinct service. Consequently, the presence of such exempted services renders the provisions of rule 6(3)(c) potentially applicable to restrict utilization of credit. [Paras 3]Inter-connectivity, roaming and infrastructure use services fall within the meaning of 'exempted services' under rule 2(e), and therefore rule 6(3)(c) is attracted.Restriction on utilization of Cenvat credit - rule 6(3)(c) (20 per cent ceiling) - capital goods Cenvat credit exception - rule 6(4) - special dispensation for 17 input services - rule 6(5) - Board circular No.137/203/2007-CX-4 - effect on utilization - Whether the 20 per cent utilization ceiling in rule 6(3)(c) applies to capital goods credit and to service tax credit in respect of the 17 input services specified in rule 6(5). - HELD THAT: - Sub-rule (4) of rule 6 permits capital goods credit where such goods are not exclusively used for exempted services; sub-rule (5) permits full credit for the 17 specified input services unless exclusively used for exempted services. The Board's circular explains that these 17 services and capital goods are akin to fixed assets that cannot be apportioned and that the 20 per cent restriction was not intended to apply to their utilization. Relying on the statutory text, the Board's instruction and prior Tribunal authority, the Tribunal construed the word 'credit' in rule 6(3)(c) as not encompassing capital goods credit and the credit for the 17 specified services. Consequently the 20 per cent ceiling is to be applied only to credits other than capital goods credit and the rule 6(5) services credit; capital goods credit and rule 6(5) services credit may be utilized without being subjected to the 20 per cent monthly/quasi-periodic ceiling. The Tribunal further accepted the proposition that unutilized quota in some months may be adjusted against excess utilization in other months, applying the reasoning of earlier Tribunal authority that no strict monthly time-frame is prescribed for utilization. [Paras 4]The 20 per cent limitation in rule 6(3)(c) does not apply to capital goods Cenvat credit and to service tax credit in respect of the 17 input services specified in rule 6(5); the ceiling applies only to other credits, and unutilized admissible quota may be adjusted across months for quantification.Limitation for recovery of wrongly taken credit - proviso to section 73(1) of the Finance Act, 1994 - penalty under rule 15 of Cenvat Credit Rules, 2004 read with section 78 - requirement of 'suppression', 'fraud' or 'wilful mis-statement' for extended limitation and penalty - Whether the extended limitation period and penalty were properly invoked on the facts, or the demands are barred except for the normal limitation period and penalty is not leviable. - HELD THAT: - The Tribunal found that the ST-3 returns disclosed details of tax payable and tax paid through credit and cash, and there was no evidence of deliberate suppression, fraud or wilful mis-statement by the appellant. The question whether inter-connectivity attracted service tax was a live dispute, and the Board had communicated that inter-connect usage charges would not attract service tax; in that factual and legal context there was no basis to invoke the extended five-year limitation or to impose penalty under rule 15(4). Reliance was placed on precedent requiring positive evidence of suppression or fraud before triggering extended limitation and punitive provisions. [Paras 5]Demands are sustainable only within the normal limitation period of one year; extended limitation and penalty under rule 15(4) read with section 78 are not attracted.Remand for quantification and de novo adjudication - Quantification of any recoverable excess credit and adjudication of demands within the normal limitation period. - HELD THAT: - On the legal conclusions reached - that rule 6(3)(c) is attracted but does not apply to capital goods and the 17 specified services, that unutilized admissible quota may be adjusted across months, and that extended limitation and penalties are not attracted - the Tribunal directed remand to the Commissioner for de novo quantification of excess utilized credit and recovery with interest only for amounts within the one-year limitation period. The Commissioner is to apply the legal principles articulated by the Tribunal in computing any recoverable amounts. [Paras 4, 6]Matters remanded to the Commissioner for de novo quantification and adjudication in accordance with the Tribunal's directions; appeals disposed accordingly.Final Conclusion: The Tribunal held that inter-connectivity, roaming and infrastructure use services are 'exempted services' under rule 2(e) so that rule 6(3)(c) is engaged; but the 20 per cent utilization ceiling in rule 6(3)(c) does not apply to capital goods Cenvat credit and to service tax credit in respect of the 17 input services specified in rule 6(5). Unutilized admissible quota may be adjusted across months. Extended limitation and penalty were not attracted on the facts; the impugned orders were set aside and the matters remanded to the Commissioner for de novo quantification and recovery, if any, within the normal limitation period. Issues Involved:1. Classification of services as 'exempted services.'2. Applicability of the 20% utilization limit under Rule 6(3)(c) of the Cenvat Credit Rules, 2004.3. Calculation of excess utilized credit.4. Invocation of extended limitation period and imposition of penalties.Detailed Analysis:1. Classification of Services as 'Exempted Services':The appellant argued that providing inter-connectivity and permitting the use of infrastructure to other telephone service providers are not 'exempted services' as these services were not taxable during the period of dispute. The Tribunal disagreed, stating that the definition of 'exempted services' under Rule 2(e) of the Cenvat Credit Rules, 2004 includes services on which no service tax is leviable under section 66 of the Finance Act, 1994. Therefore, the services in question must be treated as 'exempted services.'2. Applicability of the 20% Utilization Limit:The appellant contended that the 20% limit on the utilization of Cenvat credit for payment of service tax on output services, as prescribed in Rule 6(3)(c), should not apply to capital goods Cenvat credit and service tax credit in respect of 17 specified services under Rule 6(5). The Tribunal agreed with this plea, citing that Rule 6(4) and Rule 6(5) allow full credit for capital goods and specified services, respectively, when used for both taxable and exempted services. The Tribunal also referenced the Board's Circular No. 137/203/2007-CX-4, which clarified that the 20% restriction does not apply to these credits.3. Calculation of Excess Utilized Credit:The Tribunal stated that the 20% ceiling on credit utilization should be compared only with the utilization of credit other than capital goods credit and service tax credit in respect of the 17 specified services. The Tribunal cited the case of Vijayanand Roadlines Ltd. to support the appellant's argument that the ceiling is not restricted to a monthly or quarterly basis and can be utilized at any time. Therefore, any excess utilized credit should be quantified accordingly.4. Invocation of Extended Limitation Period and Imposition of Penalties:The appellant argued that the extended limitation period of five years and the penalties under Rule 15(4) of the Cenvat Credit Rules, 2004 read with section 78 of the Finance Act, 1994 were wrongly invoked. The Tribunal agreed, stating that the appellant had disclosed all relevant details in their ST-3 returns and that the dispute was linked to the non-taxability of inter-connectivity charges, which was clarified by the Board's letter dated 15-6-2004. The Tribunal cited the Supreme Court cases of Chemphar Drug & Liniments and Pushpam Pharmaceuticals Co., which held that mere inaction or failure does not constitute 'suppression of facts' and that the act must be deliberate. Therefore, the demand beyond the normal limitation period of one year was not sustainable, and no penalty was imposable.Conclusion:The Tribunal held that while the provisions of Rule 6(3)(c) of the Cenvat Credit Rules, 2004 are attracted and any wrongly utilized credit is recoverable with interest, the demands are sustainable only for the normal limitation period of one year. The matters were remanded to the Commissioner for de novo adjudication as per the Tribunal's directions. No penalties were imposed under Rule 15(4) of the Cenvat Credit Rules, 2004 read with section 78 of the Finance Act, 1994.