2010 (1) TMI 348 - AT - Service Tax

Verification crucial in tax dispute over service credit usage; separate records not mandatory

AVAYA GLOBAL CONNECT LTD. Versus COMMR. OF C. EX., AHMEDABAD

The Tribunal emphasized the need to verify the appellant's claim of not availing credit for common services before upholding the Service tax demand. It ... Cenvat Credit-Input Service- Appellant is engaged in the manufacture of EPABX System and other similar goods and they also provide services of erection, commissioning and installation, maintenance and repairs, commercial training and coaching, consulting engineer, scientific and technical consultancy service. Service tax demand has been confirmed against the appellant on the ground that appellants had availed Cenvat credit in respect of services which are used in respect of services provided in J&K state and SEZ which were exempted during the relevant time and while paying the Service tax they were required to utilize only 20% of the credit available for payment of Service tax on the input service in accordance with the provisions of Rule 6(3)(c) of Cenvat Credit Rules, 2004. Penalty equal to the Service tax demanded interest on the Service tax demanded have been imposed. Held that- verification not made as to statement of appellant that credit not taken on all ten common services and separate accounts not required to be maintained. Detailed discussion on applicability of Rule 6 of Cenvat Credit Rule 2004 absent in impugned order. Pre-deposit waived. Matter remanded to Commissioner for fresh adjudication. Issues Involved:Service tax demand based on Cenvat credit utilization for services provided in J&K state and SEZ, applicability of Rule 6(3)(c) of Cenvat Credit Rules, 2004, requirement of maintaining separate accounts, calculation methodology for Service tax payment, exemption status of services provided to SEZs and J&K.Analysis:1. Applicability of Rule 6(3)(c) of Cenvat Credit Rules, 2004:The appellant argued that Rule 6(3)(c) is not applicable as they did not avail credit for certain common services. They contended that separate records were unnecessary since they did not utilize the credit for those services. The Tribunal found merit in this argument but noted the lack of verification on whether the appellant indeed did not take credit for the common services. The Tribunal highlighted the need for proper verification before upholding the demand based on Rule 6(3)(c).2. Requirement of Maintaining Separate Accounts:The Department insisted on maintaining separate accounts even if credit for common input services was not taken. However, the Tribunal referenced Rule 6(2) of Cenvat Credit Rules, 2004, which mandates separate accounts only when credit is availed for inputs used in both exempted and taxable services. The Tribunal agreed with the appellant that unless it is proven that credit was used for exempted services, the demand cannot stand, emphasizing the necessity of verifying the appellant's claim regarding the ten services for which credit was not taken.3. Calculation Methodology for Service Tax Payment:The disagreement arose on the correct method for calculating Service tax payment using Cenvat credit. The appellant's approach of utilizing credit based on total tax payable for all services provided was challenged by the Department, which argued for service-wise calculations. The Tribunal did not delve deeply into this issue, as the primary focus was on verifying the credit utilization for common services.4. Exemption Status of Services to SEZs and J&K:The appellant contended that services provided to SEZs were not exempt and differed from those in J&K, where subcontractors provided the service. The Tribunal did not extensively address this argument, as the key issue requiring resolution was the verification of credit utilization for common services. The Tribunal decided to remand the matter to the Commissioner for proper verification and fresh adjudication, allowing the appellant an opportunity to present their case.In conclusion, the Tribunal emphasized the importance of verifying whether the appellant had indeed not availed credit for the common services in question before upholding the Service tax demand. The decision to remand the matter for further verification underscored the need for accuracy in determining the applicability of Rule 6(3)(c) and the requirement of maintaining separate accounts in the given context.