2019 (6) TMI 903 - AT - Service Tax

Tribunal clarifies CENVAT Credit Rules on credit utilization, lapsing & limitation period

The Tribunal held that Rule 6(3) of the CENVAT Credit Rules overrides Rules 6(1) and 6(2), with the restriction on credit utilization, not availment. It ... Non obstante clause - CENVAT credit - availment versus utilisation - lapsing of CENVAT credit - interpretation and application of Rule 6(3) of the Cenvat Credit Rules, 2004 - substantive right of taxpayer under value added taxation - extended period of limitation - invocation and time-barNon obstante clause - CENVAT credit - availment versus utilisation - lapsing of CENVAT credit - interpretation and application of Rule 6(3) of the Cenvat Credit Rules, 2004 - substantive right of taxpayer under value added taxation - Whether a provider of both taxable and exempt services who availed full CENVAT credit prior to 01/06/2007 could utilise 20% for payment of service tax and carry forward the balance without the balance lapsing on amendment of Rule 6 with effect from 01/06/2007 or 01/04/2008 - HELD THAT: - The Tribunal examined Rule 6 as it stood on 01/06/2007 and as amended w.e.f. 01/04/2008. Sub rule (3) of Rule 6 begins with a non obstante clause overriding sub rules (1) and (2) where a provider of output service opts not to maintain separate accounts. The non obstante clause was held to give the options in sub rule (3) an overriding operation and, in that context, the restriction in sub rule (3)(c) is a restriction on utilisation of credit (limiting utilisation to 20% of service tax payable) and not on the availment of credit itself. The Rules contained no provision that an unutilised balance accrued prior to amendment would lapse on the date services became taxable or on the subsequent amendment. The Tribunal therefore held that the accrued CENVAT credit could be carried forward and utilised when the utilisation cap was removed; in absence of a clear statutory prohibition, the substantive right to take and utilise credit cannot be denied. The reasoning accords with earlier Tribunal decisions and renders the question of the existence of a Board circular inconsequential to the legal conclusion that balance credit did not lapse. [Paras 5]Appellant entitled to carry forward and subsequently utilise the balance CENVAT credit; the balance did not lapse on amendment and the restriction under Rule 6(3)(c) was one of utilisation, not availment.Extended period of limitation - invocation and time-bar - disclosure in ST-3 returns and prior show cause notices - Whether the department could invoke the extended period of limitation for recovery in respect of the CENVAT credit at issue - HELD THAT: - The Tribunal noted that ST 3 returns (and prior show cause notices issued in 2008 and 2009 concerning excess utilisation) had placed the department on notice regarding the appellant's credit position and utilisation. The appellants had disclosed details in returns and earlier proceedings raised the related issue; accordingly, it was not open to revenue to resurrect the matter on a different premise invoking extended limitation. In these circumstances the show cause notice and the Order in Original did not survive on the ground of time bar. [Paras 5]Extended period of limitation could not be invoked; revenue's demand is time barred on the facts.Final Conclusion: Impugned order set aside; appeal allowed and appellants entitled to consequential relief, the accumulated CENVAT credit standing carried forward and utilisable in accordance with the Rules, and the department's recovery being unsustainable on the merits and time bar grounds. Issues Involved:1. Eligibility and utilization of CENVAT credit for telecommunication services.2. Interpretation and applicability of Rule 6 of CENVAT Credit Rules, 2004.3. Lapsing of unutilized CENVAT credit.4. Invocation of extended period of limitation.Detailed Analysis:1. Eligibility and Utilization of CENVAT Credit for Telecommunication Services:The appellants, engaged in providing telecommunication services, had an unutilized CENVAT credit of Rs. 10,84,53,929 as of 01/06/2007. The Revenue issued a Show Cause Notice (SCN) alleging that these services were exempt under CENVAT Credit Rules, and hence, the unutilized CENVAT credit would lapse due to the capping under Rule 6(3)(c) of the CENVAT Credit Rules, 2004. The Commissioner held that 80% of the credit not utilized before 01.06.2007 should lapse.2. Interpretation and Applicability of Rule 6 of CENVAT Credit Rules, 2004:The appellants argued that Rule 6(1) of CCR, 2004 is substantive and prohibits credit for inputs used in exempted services unless separate records are maintained as per Rule 6(2). Rule 6(3) begins with a non obstante clause, overriding Rules 6(1) and 6(2). Therefore, compliance with Rule 6(3) conditions means Rules 6(1) and 6(2) do not apply. The appellants cited various judgments supporting this interpretation, including Union of India Vs G.M. Kokil and others, and V.M. Salgaonkar & Bros. Pvt Ltd.3. Lapsing of Unutilized CENVAT Credit:The appellants contended there is no provision for lapsing of credit for output service providers under the CENVAT Credit Rules, 2004. They relied on CBEC Circular No. 137/72/2008-CX.4, which clarified that there are no lapsing provisions and accumulated credit should not be denied. The Tribunal in DHL Logistics Pvt Ltd and other cases held that unutilized credit due to the 20% utilization cap under Rule 6(3)(c) does not lapse and can be utilized after the cap was removed on 01.04.2008.4. Invocation of Extended Period of Limitation:The appellants argued that the SCN issued on 14.05.2010 for the period starting June 2007 was time-barred. They claimed that the utilization of CENVAT credit was disclosed in their ST-3 returns, and the department was aware of the credit utilization. The Tribunal in Chhattisgarh State Industrial Development Corporation Ltd held that mere non-disclosure is not misstatement unless it is deliberate. The Supreme Court in Continental Foundation Joint Venture ruled that omission to provide correct information is not suppression of facts unless deliberate. Therefore, the extended period of limitation was not invokable.Judgment:The Tribunal concluded that Rule 6(3) of the CENVAT Credit Rules, starting with a non obstante clause, overrides Rules 6(1) and 6(2). The restriction under Rule 6(3)(c) was only on the utilization of credit and not on its availment. There was no provision for the lapsing of credit. The Tribunal also found that the extended period of limitation was not applicable as the department had prior knowledge of the credit utilization through ST-3 returns and earlier SCNs. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.