Tribunal rules in favor of contractor on cenvat credit dispute

The Tribunal found that Rule 6 (3) of CCR, 2004, requiring reversal of cenvat credit when providing both exempted and taxable services without separate accounts, was inapplicable to a contractor solely providing Works Contract Service. As the appellant's service was not a combination of distinct taxable and exempted services but rather one taxable service with a portion exempted, the demand to reverse cenvat credit was deemed unsustainable. Therefore, the Tribunal set aside the impugned order, ruling in favor of the appellant and granting consequential relief.

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Issues:
Appeal against demand confirmed under Rule 6 (3) of CCR, 2004 for providing Works Contract Service.

Analysis:
The appellant, a registered contractor providing Works Contract Service, was asked to reverse cenvat credit under Rule 6 (3) of CCR, 2004 during an audit for the period April 2014 to March 2015. The issue arose as the service provided was considered partly exempted under Rule 2(e) of the Cenvat Credit Rules, 2004. The appellant contested that Rule 6 (3) was not applicable since they were providing only taxable services, i.e., works contract service, and not both taxable and exempted services without maintaining separate accounts. On the contrary, the department argued that 40% of the service provided was taxable, making the remaining 60% exempted, thus requiring the reversal of cenvat credit under Rule 6 (3) of CCR, 2004.

The Tribunal examined Rule 6 (3) of CCR, 2004, which applies when an assessee provides both exempted and taxable services without separate accounts for inputs/input services. It was noted that the appellant's service was solely Works Contract Service, a taxable service. The Rule is intended for distinct transactions of services, where an appellant provides two separate services, one taxable and one exempted. In this case, there was only one transaction of Works Contract Service, with a portion exempted. Since there were no distinct transactions for two services, Rule 6 was deemed inapplicable. The department did not argue that the appellant provided two different services; thus, the demand under Rule 6(3) was unsustainable.

Consequently, the Tribunal found no merit in the impugned order and set it aside, allowing the appeal with consequential relief.

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