2017 (10) TMI 400 - AT - Service Tax

Tribunal grants appeal, overturns penalties, allows credit. Extended limitation period, penalties not applicable.

The Tribunal allowed the appeal, setting aside the demands and penalties imposed by the adjudicating authority. The Appellant was entitled to reverse ... CENVAT credit - Life Insurance Services - The revenue's case is that the Appellant was not entitled for the credit of services which has been exclusively used in providing the Life Insurance services under the Traditional Golden Plan which is not taxable simultaneously they have availed credit of common input service used in taxable policies as well as policies which had no risk portion and hence not liable to tax - Held that: - in terms of explanation to Rule 2 (e) of CCR, 2004 the services on which no service tax is payable is to be considered as exempted service and the credit of input or input services is not available to the service provider. The Traditional golden plan which does not have any risk cover and thus being not liable to tax falls under the category of exempted service at the relevant time. The Appellant though litigating the show cause notice and demand on merits had also prayed for reversal of credit instead of demand of 6% value of the exempted goods contending that the substantial benefit of reversing the credit should not be denied to them - it is their submission that they have been given option to reverse the proportionate credit and they cannot be forced to reverse 6% of the value of exempted goods in terms of Rule 6 (3) of CCR, 2004 - Held that: - the assessee cannot be forced to pay 6% of the value of exempted goods in case where they have availed the credit of input services used in exempted output services. The Rule 6(3A) of CCR, 2004 only contemplates procedure for application of Rule 6(3) and does not mandates that on failure to intimate in writing for availing option the manufacturer or the service provider shall lose their choice to avail option under Rule 6(3)(ii) for reversing proportionate credit. The procedure given therein and the conditions in said Rule 6(3A) is intended to make Rule 6(3) workable. It nowhere mandates to take away options exercisable available to the assessee. Rule 6(3)(i) cannot be made automatically applicable on failure to intimate in writing about option to be availed by the assessee. The assessee has the option either to reverse the proportionate credit pertaining to such exempted service or to pay 6% - It has been consistently held by this Tribunal that there is no bar on the assessee for reversal of credit said to have been accrued while providing exempted services. It is not disputed that the Appellant is engaged in providing both categories of services and therefore there is no reason to demand cenvat reversal in respect of credit of Insurance Auxiliary services. However, input services which are exclusively used for providing exempted service the cenvat credit on such services is not admissible in terms of Rule 6(5) of Cenvat Credit Rules, 2004. Time limitation - the Appellant has argued that the demand raised by invoking extended period of limitation cannot be made against them as there was no intention to evade the service tax or fraudulent availment of credit - Held that: - apart from the non declaration of exempted service or the credit pertaining to input services used therein, no other facts has been brought to the fore which can show that behind such alleged non declaration or availment of Cenvat Credit there was an intention to evade. The facts of such credit availment were recorded in books of accounts and the same was also presented before audit. There is no findings during investigation that the Appellant was intentionally availing cenvat credit with malafide intention - The issue involved is of interpretation wherein the department is of the view that the Appellant is not eligible for credit and they were liable to maintain separate accounts in order to avail credit when input services were common or non entitlement when the services were exclusively used in exempted service. Whereas, the appellant were under the belief that the activities not being exempted, the credit is eligible. On such ground also there is nothing to establish suppression or willful misstatement with intention to evade payment of duty on the part of appellants - extended period cannot be invoked and demand is clearly time barred. Penalty - Held that: - since, there is no suppression of fact or intention to avail any illegal credit, penalty is set aside. Appeal allowed - decided in favor of appellant. Issues Involved:1. Demand for reversal of Cenvat credit availed on services used exclusively for exempted services.2. Demand for 6% of the value of exempted services.3. Invocation of extended period of limitation.4. Imposition of penalty under Section 78 of the Finance Act, 1994.Issue-Wise Detailed Analysis:1. Demand for reversal of Cenvat credit availed on services used exclusively for exempted services:The Appellant availed Cenvat credit on input services used for providing both taxable and exempted services, specifically the Traditional Golden Year Plan, which was considered exempted. The adjudicating authority confirmed the demand of Rs. 39,14,082/- for credit availed on services used exclusively for exempted services. The Tribunal held that services on which no service tax is payable are considered exempted services under Rule 2(e) of CCR, 2004, and credit on such services is not admissible.2. Demand for 6% of the value of exempted services:The adjudicating authority demanded Rs. 3,55,18,417/- equivalent to 6% of the value of exempted services under Rule 6(3)(i) of CCR, 2004. The Tribunal noted that the Appellant argued for reversal of proportionate credit instead of paying 6% of the value of exempted services. The Tribunal agreed with the Appellant, stating that the assessee has the option to reverse proportionate credit and cannot be forced to pay 6% of the value of exempted services. The Tribunal cited judgments supporting the view that procedural irregularities should not deny substantive benefits under CCR Rules.3. Invocation of extended period of limitation:The adjudicating authority invoked the extended period of limitation, alleging suppression of facts by the Appellant. The Tribunal found that the Appellant had a bona fide belief that their services were not exempted and maintained regular books of accounts. The Tribunal concluded that there was no intention to evade tax or fraudulent availment of credit, and the demand raised by invoking the extended period was not sustainable. The Tribunal set aside the entire demand as time-barred, noting that the show cause notice was issued after one year from the period in question.4. Imposition of penalty under Section 78 of the Finance Act, 1994:Given the Tribunal's findings that there was no suppression of facts or intention to avail illegal credit, the penalty imposed under Section 78 of the Finance Act, 1994, was set aside. The Tribunal emphasized that none of the ingredients of malafide intention or contumacious conduct were present.Conclusion:The Tribunal allowed the appeal, setting aside the demands and penalties imposed by the adjudicating authority. The Tribunal held that the Appellant is entitled to reverse proportionate credit and that the extended period of limitation and penalties were not applicable in this case. The judgment was pronounced in court on 25/09/2017.