2017 (6) TMI 513 - AT - Service Tax

Tribunal rules in favor of service provider on Cenvat credit recovery, citing Rule 6(5) - conflicting legal interpretations

CCE Bhopal Versus CI Finlease Ltd

The Tribunal upheld the Commissioner (Appeal)'s decision to drop the demand for recovery of Cenvat credit and penalties. It ruled in favor of the ... CENVAT credit - input services - services utilized for trading activity that is sale of motor vehicles - Held that: - during the relevant period CENVAT credit for the input services utilized for taxable and exempted services was admissible as per provisions of rule 6(5) of CENVAT Credit Rules, 2004, which was deleted by N/N. 3/2011-CN (NT) dated 01/03/2011 with effect from 01/04/2011 - When the period involved is from 2005-06 to 2009-10, there cannot be liability of reversal of CENVAT credit against the respondent - credit allowed - appeal dismissed - decided against Revenue. Issues:Appeal against dropping demand and recovery of Cenvat credit amount along with penalties.Analysis:The case involved an appeal by the Revenue against an Order in Appeal where the demand and recovery of Cenvat credit along with penalties were dropped. The appellant, a service provider, availed Cenvat credit on various input services for both trading and taxable output services. The Revenue contended that input services used in trading activity, exempt from service tax, cannot be considered as input services for availing Cenvat credit. The appellant failed to maintain separate accounts for credit used in exempted and taxable services, leading to a show cause notice for disallowing and recovering Cenvat credit related to trading activities. The demand was confirmed by an Order in Original, which was appealed by the respondent.The Commissioner (Appeal) dropped the demand citing Rule 6(5) of Cenvat Credit Rules, 2004, in force during the relevant period. The Revenue appealed this decision, arguing that the Rule was omitted only from April 1, 2011, onwards. The Tribunal, after hearing both sides, noted that during the period in question (2005-06 to 2009-10), Cenvat credit for input services used in taxable and exempted services was admissible under Rule 6(5). Referring to a similar case, the Tribunal emphasized that there was genuine confusion due to differing views and amendments in the law regarding exempted services. The Tribunal concluded that the demand was time-barred and set aside the impugned order, allowing the appeal.Therefore, the Tribunal found no merit in the Revenue's appeal, sustaining the impugned order and rejecting the appeal as lacking merits. The decision was based on the provisions of Rule 6(5) of Cenvat Credit Rules, 2004, applicable during the relevant period and the genuine confusion surrounding the treatment of exempted services.