2023 (5) TMI 1153 - AT - Service Tax

CESTAT rules in favor of Vodafone Mobile Services Ltd. on CENVAT Credit limit challenge

The appellant, M/s. Vodafone Mobile Services Ltd., challenged the demand for utilizing CENVAT Credit exceeding the 20% limit under Rule 6(3)(c) of the ... CENVAT Credit - rendering both taxable and exempted services and having not maintained separate accounts - providing the interconnection service, was also collecting interconnect usage charges (IUC), the tax on which was being remitted by the appellant only from 01.06.2007 - non-payment of service tax on interconnection service - period from April 2005 to May 2007 - extended period of limitation. Suppression of fact or not - providing interconnection service and receiving charges for the same - suppressed the fact of not maintaining separate accounts, as required under the statute. Whether the Revenue is justified in holding that the appellant had utilized the CENVAT Credit in excess of the 20% limit prescribed under Rule 6(3)(c) of the CENVAT Credit Rules, 2004 and whether the consequential demand for recovery of the alleged credit used in excess of 20% is justified? HELD THAT:- In the impugned order, the Adjudicating Authority has clearly admitted that Show Cause Notice No. 71/2008 dated 28.03.2008 was issued to M/s. Vodafone Essar South Limited, Chennai and Show Cause Notice No. 14/2010 dated 29.04.2010 was issued to M/s. Vodafone Essar Cellular Limited, Coimbatore and it appears that the above Show Cause Notices were for the periods from September 2004 to March 2007 and April 2005 to May 2007 respectively. Further, he appears to have accepted the plea of the appellant in their reply to the Show Cause Notice No. 71/2008 that, in view of the clear provisions of Rule 6(5) ibid., they were entitled to avail and utilize the whole of the CENVAT Credit in respect of the specified services unless the same were used exclusively for providing exempted output service; that it is not the case of the Revenue that the appellant had used any of the specified services exclusively for providing exempted output service and that the restriction under Rule 6(3)(c) would not apply to services specified in Rule 6(5) ibid. It is clear from the findings of the Learned Commissioner that he has held that the ceiling of 20% under Rule 6(3)(c) is not applicable to capital goods and 17 input services specified under Rule 6(5). The Bench has also considered the Board Circular No. 137/203/2007-CX-4 dated 01.10.2007 to hold that ceiling of ‘20% of the service tax payable’ on utilization of credit for payment of service tax, as prescribed in Rule 6(3)(c) has to be compared not with total credit utilization, but with the utilization of credit, other than capital goods credit and service tax credit in respect of the 17 input services mentioned in Rule 6(5). That is to say, all the credit pertaining to input services under Rule 6(5) and capital goods credit, should be permitted to be utilized; the restriction is only in respect of the input services credit not falling under Rule 6(5) and inputs. In the impugned order, the Learned Commissioner however, denies the above benefit to the appellant by holding that the appellant did not provide any evidence or supporting documents to prove their claim - the above conclusion cannot be agreed upon for the reason that the same set of documents, apparently, were relied upon and the Learned Commissioner has also nowhere denied the fact that the eligibility to utilize the whole of CENVAT Credit could not be denied in respect of the specified services unless the same were exclusively used for providing exempted output service and nor is it the case of the Department that the restriction under Rule 6(3)(c) would not apply to the services specified in Rule 6(5). Extended period of limitation - HELD THAT:- The fact remains that other than alleging wilful suppression of facts, the Revenue has not adduced any documentary evidence in support of its allegation to justify the same - in the very same order in IDEA CELLULAR LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, ROHTAK [2009 (2) TMI 91 - CESTAT NEW DELHI], the Learned Principal Bench has, following the ratios of the Hon’ble Supreme Court, held that something positive rather than mere inaction or failure on the part of an assessee has to be proved before invoking the extended period of limitation, though the Learned Bench has sustained the demand therein for the normal period - The same ratio applies to this case also. The demand as well as the impugned order, to the extent it is appealed, cannot sustain, either on merits or on limitation and hence, the same is set aside - Appeal allowed. Issues Involved:1. Whether the appellant utilized CENVAT Credit in excess of the 20% limit prescribed under Rule 6(3)(c) of the CENVAT Credit Rules, 2004.2. Whether the consequential demand for recovery of the alleged credit used in excess of 20% is justified.3. Whether the extended period of limitation can be invoked due to alleged suppression of facts by the appellant.Summary:Issue 1: Utilization of CENVAT Credit in excess of 20% limit under Rule 6(3)(c)The appellant, M/s. Vodafone Mobile Services Ltd., was accused of utilizing CENVAT Credit exceeding the 20% limit prescribed under Rule 6(3)(c) of the CENVAT Credit Rules, 2004, for the period from April 2005 to May 2007. The Revenue alleged that the appellant did not maintain separate accounts for taxable and exempted services, thus violating the rule. The appellant contended that Rule 6(3)(c) did not apply to credit availed on capital goods and certain input services specified under Rule 6(5). The Principal Bench of CESTAT in M/s. Idea Cellular Ltd. v. Commissioner of Central Excise, Rohtak supported this view, stating that the 20% ceiling did not apply to capital goods and specified input services.Issue 2: Justification of the consequential demandThe Commissioner of Service Tax confirmed the demand based on the assumption that the entire credit utilization pertained to inputs and input services. However, the appellant argued that the demand was incorrect as the restriction under Rule 6(3)(c) did not apply to capital goods credit. The Commissioner had previously dropped a similar demand in another Show Cause Notice (No. 71/2008) but confirmed the demand in the current Show Cause Notice (No. 14/2010) without providing a consistent rationale. The CESTAT found this inconsistent approach unjustified and held that the restriction under Rule 6(3)(c) did not apply to capital goods and specified input services.Issue 3: Invocation of the extended period of limitationThe appellant argued that the demand was barred by limitation as the extended period could not be invoked without evidence of suppression. The Commissioner had contradictory stands, acknowledging the Department's awareness of the appellant's activities in one instance but denying it in another. The CESTAT found no documentary evidence to support the allegation of suppression and held that mere inaction or failure on the part of the appellant did not justify invoking the extended period.Conclusion:The CESTAT concluded that the demand and the impugned order could not sustain either on merits or on limitation grounds. The appeal was allowed, and the order was set aside.