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 ... Utilization of CENVAT Credit - Rules 6 of CENVAT Credit Rules - Whether the appellant could avail of the full Cenvat, and utilize 20% of the same while carrying forward the balance 80%, under erstwhile Rule 6(3)(c) of Cenvat Credit Rules, even though they were providing both taxable as well as exempted services? HELD THAT:- A plain reading of the above provisions indicate that while Rule 6(1) provides that the manufacturer or provider of output service is not entitled for the credit of such quantity of input or input services which are used in the manufacture of exempted goods or exempted service except in the circumstances mentioned in the sub-rule (2) of the said Rules. Sub-rule (2) of Rule 6 provides for maintenance of separate records in respect of inputs, input services substantiating use of input and input services for taxable and exempted goods or services. Sub-rule (3) of Rule 6 provides that in case separate accounts are not maintained, the manufacturer or provider of services shall follow either of the conditions stipulated in sub-rule (3) of Rule 6. It is pertinent to note that after the amendment the only change that could be seen in respect of sub-rule (3) is to the extent of payment in respect of exempted goods produced or exempted services provided. While there is a cap on the utilisation of credit attributable to exempted goods or services, there is no cap whatsoever on the availment of CENVAT credit and there is no mention of any lapse of credit after utilisation of credit of 20% prior to 1.4.2008 or after payment of requisite percentage of value after 1.4.2008. Just because the services provided by the appellants have become taxable with effect from 1.4.2008, it cannot be said that the credit already availed and accrued shall lapse. As submitted by the appellants, we find that sub-rule (3) of Rule 6 begins with a word ‘Notwithstanding anything contained in sub-rules (1) and (2)’. The only inference that can be drawn from the non obstante clause is that the provisions of Rule 3 have an overriding nature. The provisions of sub-rule (3) of Rule 6 is very clear that if the provider of output services does not maintain separate accounts, the only restriction is placed is on the extent of utilisation of credit and there is no provision which provides that the balance of credit, if any, shall lapse. It is seen that Tribunal in DHL LOGISTICS PVT. LTD. VERSUS CCE [2015 (7) TMI 1039 - CESTAT MUMBAI] has concluded the issue independently and sought to reinforce the decision on the basis of the purported circular. Therefore, we find that the existence or otherwise of the circular is inconsequential. However, it is not clear as to why Madurai Commissionerate has issued such a Trade Notice based on the Circular and as to whether the same was withdrawn subsequently. However, as we find that the appellants claim to the unutilised credit is correct on merits, we do not find any reason to go into the circular. Time Limitation - HELD THAT:- Understandably, the show-cause notices must have been issued after detailed scrutiny of the ST-3 returns. Once such show-cause notice is issued, it is not open for the department to rake-up the issue on a different preposition invoking extended period - the show-cause notice and Order-in- Original does not survive on time bar issue also. Appeal allowed - decided in favor of appellant. 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.