2024 (6) TMI 396 - AT - Service Tax

Orient Decorators wins appeal as CENVAT credit proportionate reversal deemed sufficient, extended period demand fails

M/s. ITC Limited Versus Commissioner of Service Tax, Kolkata

CESTAT Kolkata allowed the appeal on both merits and limitation grounds. The tribunal held that proceedings against Orient Decorators exceeded the scope ... Scope of SCN - reversal of CENVAT Credit - non-maintenance of separate records for the input services received for provision of taxable and exempted services - invoices issued to R.D. Enterprises for decoration of banquet halls and two other parties providing security consultants and Ascon Engineers services etc - time limitation. Scope of SCN - HELD THAT:- There is no reference to the services provided by Orient Decorators in the Show Cause Notice - This would amount to travelling beyond the scope of Show Cause Notice. Reversal of CENVAT Credit - HELD THAT:- As a matter of fact, there is no provision to take the cenvat credit on proportionate basis as has been done by the appellant during the years 2008-09 and 2009-10. On being pointed out, though they have taken the cenvat credit to the tune of about Rs.73000 on proportionate basis, they have reversed the entire credit of Rs.6,14,107/- along with interest of Rs.1,33,720/- on 27.11.2010 - in several cases, the Tribunals and High Courts have been consistently holding that for mere taking of a few thousands worth of Cenvat Credit, the assessee should not be burdened with 6% / 8% of the value of the exempted goods for recovery of the Cenvat Credit. Amendment carried out to Rule 6 of Cenvat Credit Rules 2004 by insertion of Rule 6 (3AA), clarifies the legislative intent to recover only the proportionate cenvat credit and not 6 % / 8% even when the assessee fails to opt for proportionate reversal at the initial stages even though the option was not exercised earlier. In cases, where the entire cenvat credit taken is reversed, the assesse would be in a much better footing - thus the appeal allowed on merits. Extended period of limitation - HELD THAT:- There are sufficient force in the Appellant’s submission that no case has been made out by the Revenue on account of suppression on the part of the Appellant. The cenvat credit taken by them have been reflected in the ER 1 Returns filed by them. As is clarified by the Certificate issued by the Chartered Accountant, during the first two years no Cenvat Credit was taken whereas during the next two years they have taken proportionate Cenvat Credit - the Department has not made out any specific case of suppression on the part of the Appellant as so to fasten the demand in respect of extended period on the Appellant - the confirmed demand of the extended period is not sustainable even on account of time bar. The Appeal is allowed both on merits as well as on limitation Issues Involved:1. Admissibility of Cenvat Credit.2. Allegation of taking credit beyond the scope of Show Cause Notice.3. Time-barred demand and suppression of facts.Summary:1. Admissibility of Cenvat Credit:The Appellant, engaged in providing 'Mandap Keeper Service' and 'Convention Service', faced a Show Cause Notice demanding 6%/8% of the value of exempted services for not maintaining separate records for input services. The Appellant argued that they had reversed the total credit of Rs.6,14,107/- along with interest of Rs.1,33,720/- on 27.11.2010, which amounts to not having taken any Cenvat Credit at all. They maintained separate records for taxable and exempted services, and any credit taken was due to clerical mistakes, which were fully reversed upon being pointed out.2. Allegation of Taking Credit Beyond the Scope of Show Cause Notice:The Appellant contended that the Adjudicating Authority confirmed the demand based on invoices issued by Orient Decorators, which was not mentioned in the Show Cause Notice. This was considered as 'travelling beyond the scope of Show Cause Notice.' The Tribunal agreed, noting that the Appellant had not taken credit for services rendered by Orient Decorators during 2006-07 and 2007-08, and any credit taken in 2008-09 and 2009-10 was an inadvertent error, fully reversed later.3. Time-barred Demand and Suppression of Facts:The Appellant argued that the Show Cause Notice issued on 22.09.2010 for the period March 2006 to September 2009 was time-barred. They maintained separate records and reversed the credit along with interest, negating any intent to evade duty. The Tribunal found no specific case of suppression by the Appellant, as the Cenvat credit was reflected in their ER 1 Returns, and the reversal was more than 100% of the credit taken. Hence, the confirmed demand for the extended period was not sustainable due to time bar.Conclusion:The Tribunal allowed the Appeal on merits and limitation, granting consequential relief as per law. The Miscellaneous Petition was also disposed of. The judgment emphasized that reversal of credit amounts to no credit being taken, aligning with precedents set by various High Courts and the Supreme Court.