Appellant wins CENVAT Credit dispute for common services under Rule 6(5) with proper account maintenance

CESTAT Kolkata ruled in favor of appellant engaged in providing taxable services and manufacturing exempted goods. Appellant properly maintained separate accounts for exclusive services and inputs, correctly availed 100% CENVAT Credit on common services covered under Rule 6(5) including security services and bank charges, and stayed within 20% limit under Rule 6(3)(c) during 2006-07 and 2007-08. No CENVAT Credit reversal required. Show Cause Notice proceedings unsustainable. Impugned order set aside, appeal allowed.

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Issues:
Demand raised for contravention of Rules 6(3) of the CENVAT Credit Rules, 2004.

Analysis:
The appellant was engaged in providing taxable services and manufacturing exempted goods. Separate accounts were maintained for each activity. The appellant availed 100% credit on inputs exclusively used for taxable services. No tax element was involved in inputs used for manufacturing exempted goods, and no credit was taken for those inputs. Common input services were availed by the appellant. An audit in 2011 led to demands of Service Tax, which were paid. Subsequent letters alleged excess CENVAT Credit utilization, leading to a Show Cause Notice in 2012. The Notice invoked the extended period of limitation and alleged excess credit utilization for specific financial years. The appellant contested the Notice, arguing correct compliance with Rule 6 and misinterpretation of law. The appellant maintained separate records for inputs used in each activity and reversed excess credit after the Notice. The appellant argued that the demands were disproportionate and based on incorrect facts. The appellant relied on legal precedent to support their case. The Revenue supported the impugned order.

The Tribunal found that the appellant availed credit correctly for taxable services and exempted goods. Certain common services were used for both activities. The Tribunal noted that specific services were eligible for 100% credit under Rule 6(5) of the CENVAT Credit Rules, 2004. The appellant had utilized credit within the prescribed limit for certain financial years. The appellant had also proportionately reversed credit for other years. Therefore, the Tribunal held that the proceedings against the appellant were not sustainable. The impugned order was set aside, and the appeal was allowed with consequential relief.

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