2018 (11) TMI 1148 - AT - Service Tax

Tribunal upholds extended limitation period under CCR 2014, grants credit pending verification

M/s. Sify Technologies Ltd., Chennai Versus Comm. (Central Ex. & S.T.), LTU, Chennai (Presently Known as “The Commr. GST, CCE, Chennai south Commissionerate”)

The Tribunal upheld the invoking of the extended period of limitation under Rule 14 of the CCR, 2014, along with the proviso to Section 73(1). The demand ... CENVAT credit - common input services used to render taxable as well as exempted services - Rule 6(3) (c) of the Cenvat Credit Rules, 2004 - invocation of extended period. Extended period of limitation - contention of petitioner is that SCN dated 06.01.2011 will become time barred for the period prior to 2009, since an earlier show cause notice dated 12.10.2006 had already been issued to SFL on identical issue - Held that:- Since SCL and SFL remained as separate entities prior to their merger, we are of the view that invoking the extended period of limitation in the second show cause notice dated 06.01.2011 will not be against the order of the Supreme Court in the Nizam Sugar case. [2006 (4) TMI 127 - SUPREME COURT OF INDIA], where it was held that extended period cannot be invoked in a second show cause notice if, for identical facts for an earlier period, a show cause notice has already been issued. The appellant will not be entitled to credit on common input services. Turning to the period post 01.04.2008, it is noted that Rule 6(3) has been amended from this date and Rule 6 (3A) has been inserted in place of the erstwhile Rule 6(3) (c) which had prescribed a limit of 20% on the common input services credit. Rule 6(3A) has prescribed the procedure for proportionate reversal of credit availed on common input services - The Tribunal in the case of M/S. SIFY TECHNOLOGIES LTD. VERSUS COMMISSIONER OF SERVICE TAX, LTU, CHENNAI [2018 (9) TMI 317 - CESTAT CHENNAI] has upheld that in respect of common input services, an assessee will need to follow either sub rule 2 or Sub Rule 3 of Rule 6. By maintaining separate accounts and availing cenvat credit only in respect of the exclusively taxable services in full, the appellant has subscribed to sub rule 2 - even for the period post 01.04.2008, despite the amendment carried out in Rule 6(3) and insertion of sub Rule 3A the decision of Tribunal is followed. Another case of appellant is that the appellant is entitled to the full cenvat credit in respect of input services specified in Rule 6(5) of the Cenvat Credit Rules - Held that:- This sub rule permits full credit of 17 services specified therein - there is no reason for denying the above credit. It is also relevant to record that in the earlier proceeding culminating in the Order In Original dated 30.09.2009, the full credit of services under Rule 6(5) was in fact allowed by the adjudicating authority. Appeal allowed in part. Issues Involved:1. Denial of Cenvat credit on common input services used for both taxable and exempted services.2. Applicability of Rule 6(3) and Rule 6(3A) of the Cenvat Credit Rules, 2004.3. Time-barred nature of the show cause notice dated 06.01.2011.4. Allegation of suppression of facts and the invocation of the extended period of limitation.5. Entitlement to full Cenvat credit on input services specified in Rule 6(5) of the Cenvat Credit Rules, 2004.Detailed Analysis:1. Denial of Cenvat Credit on Common Input Services:The impugned order denied the Cenvat credit availed by the appellant on common input services used to render both taxable and exempted services. The appellant maintained separate accounts for taxable services and did not avail of Cenvat credit for exempted services. However, for common input services, they availed the credit in full, claiming it did not exceed 20% of the output service tax liability as per Rule 6(3)(c) of the Cenvat Credit Rules, 2004. This restriction was removed from 01.04.2008, and Rule 6(3A) was introduced for proportionate reversal. The adjudicating authority ordered the reversal of the entire Cenvat credit availed on common input services.2. Applicability of Rule 6(3) and Rule 6(3A) of the Cenvat Credit Rules, 2004:The appellant argued that they complied with Rule 6(3) post-01.04.2008 by adhering to proportionate reversal under Rule 6(3A). Despite a delay in filing the option under Rule 6(3A), they claimed compliance with the proportionate reversal. The Tribunal, however, held that the appellant needed to follow either sub-rule 2 or sub-rule 3 of Rule 6 for common input services. By maintaining separate accounts and availing Cenvat credit only for taxable services, the appellant subscribed to sub-rule 2, making Rule 6(3) inapplicable.3. Time-barred Nature of the Show Cause Notice:The appellant contended that the show cause notice dated 06.01.2011 was time-barred for the period prior to September 2009, as an identical issue had been raised in an earlier show cause notice dated 12.10.2006. The Tribunal referred to the Hon'ble Supreme Court's decision in the Nizam Sugar case, which stated that the extended period could not be invoked in a second show cause notice if an earlier notice had been issued for identical facts. However, the Tribunal upheld the extended period of limitation, noting that SCL and SFL were separate entities prior to their merger, and the facts regarding the maintenance of separate accounts came to light only after the merger.4. Allegation of Suppression of Facts and Invocation of Extended Period of Limitation:The department justified the allegation of suppression of facts and the invocation of the extended period of limitation, arguing that the identical issue was raised only after the merger of SCL with SFL. The Tribunal agreed with the department, stating that the facts regarding the maintenance of separate accounts and the availing of common input services credit came to light only after the merger and verification by the department. Thus, the extended period of limitation under Rule 14 of the CCR read with the proviso to Section 73(1) was rightly invoked.5. Entitlement to Full Cenvat Credit on Input Services Specified in Rule 6(5):The appellant argued that they were entitled to full Cenvat credit on input services specified in Rule 6(5) of the Cenvat Credit Rules, 2004. The Tribunal agreed, noting that the adjudicating authority had allowed full credit for services under Rule 6(5) in the earlier proceedings. Therefore, the appellant was entitled to the entire credit claimed under Rule 6(5), subject to verification by the adjudicating authority.Conclusion:1. The invoking of the extended period in terms of Rule 14 of the CCR, 2014 read with the proviso to Section 73(1) is upheld.2. The demand raised and confirmed in the impugned order is sustained, but the appellant is entitled to the entire credit claimed under Rule 6(5), subject to verification.3. The appeal is partly allowed as above.