Appellant wins as proportionate cenvat credit reversal eliminates need for Rule 6(3) payment under Cenvat Credit Rules

CESTAT Kolkata set aside the demand for 5%/6% of exempted services value under Rule 6(3) of Cenvat Credit Rules, 2004 for the period 2009-10 to 2013-14. The appellant maintained separate accounts and had already reversed proportionate cenvat credit attributable to exempted services. Although transaction charge services' proportionate reversal was initially missed, it was corrected after audit. The tribunal held that since proportionate cenvat credit was already reversed, no payment of 5%/6% of exempted services value was required. The adjudicating authority failed to consider this fact. Penalty was also set aside as no sustainable demand existed. Appeal allowed.

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Issues:
Challenge to demand of 5%/6% of value of exempted services; Maintenance of separate accounts for common input services; Allegation of availing cenvat credit on common input services; Show-cause notices for payment of amount equal to 5%/6% of value of exempted services; Adjudicating authority's order requiring payment of 5%/6% of value of exempted services; Appellant's contention on reversal of cenvat credit; Revenue's support for impugned order.

Analysis:
The appeal challenges the demand of 5%/6% of the value of exempted services provided by the appellant during 2009-10 to 2013-14. The appellant, engaged in stock broking services, maintained separate books for stock broking and self-trading activities. The appellant availed cenvat credit on common input services without maintaining separate accounts for exempted and taxable services, leading to the demand. The appellant contested show-cause notices, arguing that proportionate cenvat credit reversal had been done. The Revenue supported the impugned order based on the appellant availing cenvat credit on common input services.

The issue revolved around whether the appellant was liable to pay 5%/6% of the value of exempted services for not maintaining separate accounts for common input services. The appellant had reversed proportionate cenvat credit attributable to exempted services, as noted in CERA audit findings. The Tribunal referenced precedents where non-filing of option letters should not result in huge payments under Rule 6(3) of Cenvat Credit Rules. The legislative intent was seen in Rule 6(3AA) to allow proportionate cenvat credit reversal. Consequently, the demand against the appellant was deemed unsustainable, leading to setting aside the impugned order.

The Tribunal held that since the appellant had already reversed the proportionate cenvat credit for exempted services, no payment of 5%/6% of the value of exempted services was required. As no demand was sustainable, no penalty was imposed on the appellant. The impugned order was set aside, and the appeal was allowed with any consequential relief. The judgment was pronounced on 11.06.2024 by the Appellate Tribunal CESTAT Kolkata, comprising Mr. Ashok Jindal and Mr. K.Anpazhakan.

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