Non-taxable services outside the charging provision are not exempted services for Rule 6 Cenvat compliance.

Services rendered in Jammu and Kashmir, being outside the territorial scope of Chapter V of the Finance Act, 1994, were not chargeable to service tax and therefore were not "exempted services" for Rule 6 of the Cenvat Credit Rules, 2004. On that basis, the rule's requirements of separate account maintenance and payment at the prescribed percentage did not apply to those services. The Tribunal's view that proportionate credit had already been reversed was also accepted, so no further demand survived. The stated result was that no substantial question of law arose and the revenue challenge failed.

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Issues: Whether services provided in the State of Jammu and Kashmir, on which no service tax was leviable under the Finance Act, 1994, could be treated as exempted services so as to attract the requirements of Rule 6 of the Cenvat Credit Rules, 2004, including maintenance of separate accounts and payment at the prescribed percentage.

Analysis: The controversy turned on the statutory scope of service tax and the Cenvat Credit Rules. Since Chapter V of the Finance Act, 1994 did not extend to Jammu and Kashmir, services rendered there were not chargeable to service tax. A service which is not subject to the levy is not the same as an exempted service granted exemption by notification or law. On that footing, the definitions of exempted service, output service, and input service under the Cenvat Credit Rules did not govern the disputed services. Rule 6(2) applies where both taxable and exempted services are provided, and it was not designed to cover services outside the charging provision itself. The Tribunal's view that the assessee had already reversed proportionate credit and therefore no further demand at the prescribed percentage could survive was also accepted.

Conclusion: The services provided in Jammu and Kashmir could not be treated as exempted services, Rule 6 of the Cenvat Credit Rules, 2004 was inapplicable to those services, and the assessee was not liable to maintain separate accounts or pay the demanded amount.

Final Conclusion: No substantial question of law arose, and the revenue challenge failed.

Ratio Decidendi: Services outside the territorial scope of the charging provision are not exempted services for the purpose of Rule 6 of the Cenvat Credit Rules, 2004, and the reverse-credit mechanism under that rule cannot be invoked in respect of such non-taxable services.

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