2024 (12) TMI 287 - AT - Service Tax

Appellant wins partial relief on CENVAT credit reversal for exempted services across multiple periods

CESTAT New Delhi partially allowed the appeal concerning CENVAT credit reversal for exempted services. For FY 2010-11, the tribunal set aside demand on ... CENVAT Credit - short payment of an amount equivalent to Cenvat credit attributable to exempted services - contravention of provisions of sub rule 2 and 3 of Rule 6 of Cenvat Credit Rules, 2004 - HELD THAT:- Appellant is holding service tax registration for providing various taxable services like Management Consultancy Services, Internet Cafe Services and Mandap Keeper Services - The appellant is also rendering few services which are exempted from payment of tax - The appellant is not maintaining the separate register for the inputs used in providing taxable as well as exempted services like Food Sale in Restaurants, Boarding and Lodging facilities of guests etc - Sub-clause (ii) of Rule 6 (3) of Cenvat Credit Rules, 2004 has been complied with by the appellant. While applying Rule 6 (3A) of Cenvat Credit Rules, 2004 appellant had reversed the proportionate Cenvat Credit of Rs. 28,42,027/- for the Year 2010-11 with an intimation thereof to the department vide letter dated 30.06.2011 and has also reversed the proportionate Cenvat credit of Rs. 28,32,413/- for the Year 2011-12 under intimation to the department vide letter dated 29.06.2012. Financial Year 2010-11 - HELD THAT:- The amount of Cenvat credit was not supposed to be reversed vis-à-vis Management Consultancy Services. The original adjudicating authority also in Para 4.4.1 in sub-para 2 has held that appellant to be entitled to avail 100% credit of the same irrespective of their utilization in taxable or non-taxable service during the period under question. However, relief has been denied as the said sub-rule (5) was omitted vide Notification No. 3/2011. However, it is observed that the said notification is dated 01.03.2011 which omits sub-rule (5) of Rule 6 of Cenvat Credit Rules, 2004 w.e.f. 01.04.2011. The period in question is March 2010 to March 2011 which means the notification has wrongly been applied by the adjudicating authority for denying the availment of 100% credit on the Management Consultancy Services. April 2012 to June 2012 - HELD THAT:- The amount of Rs. 4,65,651/- as claimed as re-credit by the appellant against excess reversal in previous Financial Year has already been denied to be subjected to proportionate reversal in the ratio of exempted services provided in the subsequent period. The already reversed Cenvat credit under intimation to the department has also been acknowledged by the adjudicating authority in the said para itself. The proportionate value of Cenvat credit has already been reduced. There are no reason to interfere with those findings. July 2012 to March 2013 - HELD THAT:- The use of Wi-fi Services in providing number of exempted services has not been denied by the assessee. Rather the assessee themselves had exercised the option under Rule 6 (3)(ii) of Cenvat Credit Rules, 2004 for payment of proportionate amount attributable to exempted services as they were not in a position to identify a particular input service with a particular output service. In the light of the said admitted facts, it has been held that there is no justification in showing use of a particular input service exclusively in taxable output service and to claim full Cenvat credit on a subsequent occasion without having withdrawn the option availed of Rule 6 (3) of Cenvat Credit Rules, 2004. There are no reason to differ from these findings. Accordingly, once the appellant exercised option to pay under Rule 6 (3) (ii) of Cenvat Credit Rules, 2004 they were under legal obligation to pay the amount as determined under the said rule. The demand for the period 2010-11 vis-à-vis the amount of Cenvat credit availed on Management Consultancy Services is hereby set aside. The demand from April 2012 to June 2012 stands modified - The order with respect to demand for the period July 2012 to March 2013 is also upheld. Appeal allowed in part. Issues:- Alleged short payment of Cenvat credit for different periods- Applicability of Rule 6 of Cenvat Credit Rules, 2004- Department's calculation discrepancies- Exclusivity of Wi-fi expenses for taxable services- Compliance with Rule 6 (3) (ii) of Cenvat Credit Rules, 2004Analysis:The case involves a dispute regarding the alleged short payment of Cenvat credit by the appellant for various periods. The appellant, engaged in providing taxable and exempted services, availed the option under Rule 6 (3) (ii) of Cenvat Credit Rules, 2004. The department contended that the appellant had short paid Cenvat credit attributable to exempted services, leading to a recovery proposal and subsequent confirmation via an Order-in-Original. The appellant challenged this before the Tribunal.During the hearing, the appellant's Chartered Accountant argued against the department's calculations for different periods. For the Financial Year 2010-11, it was contended that the department failed to consider Rule 6 (5) of Cenvat Credit Rules, specifically allowing 100% credit on Management Consultancy Services, irrespective of their use in exempted services. The appellant had availed substantial credit for such services, justifying a set-aside of the demand.Regarding the alleged short payment for the period from April 2012 to June 2012, discrepancies in the department's figures were highlighted. An amount pertaining to re-credit taken in June 2012 was unjustly included in the calculations, leading to an unsustainable demand for Cenvat credit. Similarly, for the period July 2012 to March 2013, it was argued that Wi-fi expenses were solely incurred for taxable services, making Rule 6 of Cenvat Credit Rules, 2004 inapplicable. The appellant sought the set-aside of demands for these periods.The Departmental Representative supported the Commissioner's findings, emphasizing no infirmity in the order and seeking dismissal of the appeal. After hearing both parties and examining the case record, the Tribunal noted admitted facts, including the appellant's service tax registration and compliance with Rule 6 (3A) of Cenvat Credit Rules, 2004 for reversing Cenvat credit proportionately.The Tribunal analyzed the contentions for each period in detail. For the Financial Year 2010-11, it held that the appellant was entitled to 100% credit on Management Consultancy Services, contrary to the department's denial based on an incorrect application of a notification. The demand for this period was set aside. For the subsequent periods, adjustments were made based on the observations, modifying the demands accordingly. The Tribunal partly allowed the appeal, modifying the order under challenge.In conclusion, the Tribunal set aside the demand for the Financial Year 2010-11 concerning Management Consultancy Services, modified the demand for the period from April 2012 to June 2012, and upheld the demand for the period from July 2012 to March 2013. The appeal was partly allowed, and the order was modified accordingly.