Tribunal Overturns Demand and Penalties; Upholds Proportionate Credit Option for Exempted Services.

The Tribunal ruled in favor of the Appellant, setting aside the demand and penalties imposed by the lower authorities. The Tribunal held that the Department cannot demand payment based on the value of exempted services when the Appellant had exercised the option to reverse proportionate credit. Consequently, the appeal was allowed with consequential relief.

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Issues:
Whether the Appellant is liable to pay an amount equal to 6% of the value of the exempted products when they have opted to reverse the proportionate credit in respect of the trading activity (exempted service).

Analysis:
The appeal was filed against the Order-In-Appeal passed by the Commissioner (Appeals) CGST & Central Excise, Allahabad, regarding the demand of CENVAT credit and reversal of credit under Rule 6(3) of the CENVAT Credit Rules, 2004. The Appellant, engaged in providing "Health Club and Fitness Services" and "Beauty Parlour Services," also sold cosmetic products. The dispute arose when the audit team alleged that the Appellant did not reverse the proportionate amount of common CENVAT Credit attributable to trading of goods. The Adjudicating Authority dropped the demand of INR 3,99,180/- but confirmed a demand of INR 95,077/- under Rule 6(3) of the CCR, 2004, along with interest and penalty. The First Appellate Authority upheld the decision, leading to the appeal before the Tribunal.

The Appellant contended that they maintained separate books of accounts as per Rule 6(2) of the CCR, 2004 for CENVAT Credit exclusively used for taxable and exempted services. They claimed to have reversed the proportionate credit as required by Rule 6(3A) of the CCR, 2004. The Appellant argued that the Lower Authorities failed to consider the value of exempted services in trading of goods as per Rule 6 inserted via the Finance Act 2011. They computed the value of exempted service based on the original value or 10% of the cost price, whichever is more.

The Departmental Representative supported the impugned order, stating that the Appellant did not provide evidence of maintaining separate accounts for taxable and exempted services. It was argued that the Appellant did not intimate the jurisdictional Officer about exercising the option under Rule 6(3A) and thus, were liable to pay 6% of the value of exempted goods. However, the Tribunal noted that the Appellant had intimated the Range Officer about their option to reverse proportionate credit, as reflected in their Balance Sheet and ST3 Returns.

The Tribunal held that the Department cannot demand payment based on the value of exempted services when the Appellant had exercised the option to reverse the proportionate credit. Referring to a relevant case law, the Tribunal found in favor of the Appellant, setting aside the demand and penalties imposed. The impugned orders were set aside, and the appeal was allowed with consequential relief.

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