Cenvat credit and service tax demands fail where proportionate credit was taken, tax was correctly classified, and rate rules were applied.

Rule 6 of the Cenvat Credit Rules allows alternative compliance for mixed taxable and exempted services, and the department cannot compel payment under Rule 6(3) where the assessee has taken only proportionate credit on common input services. Service tax cannot be demanded under erection, commissioning and installation service if records show tax was already discharged under the correct service categories. For invoices issued before 01.04.2012, the Point of Taxation Rules determine whether the post-increase rate applies, and only the portion actually taxable at the higher rate can be subjected to differential tax. Where the principal demands do not survive, consequential interest and penalties also fall.

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Issues: (i) whether an amount equal to a percentage of the value of exempted services could be demanded under Rule 6(3) of the Cenvat Credit Rules, 2004 read with Rule 14 of the Cenvat Credit Rules, 2004 when the assessee had not opted for that course and had availed only proportionate credit on common input services; (ii) whether the service tax demand under the head of erection, commissioning and installation service for 2012-13 was sustainable when the invoices and tax payment records showed tax had been discharged under the appropriate service categories; (iii) whether differential service tax was payable on invoices raised before 01.04.2012 merely because payment was received after the rate increased, notwithstanding the Point of Taxation Rules, 2011 and the tax already paid during audit.

Issue (i): whether an amount equal to a percentage of the value of exempted services could be demanded under Rule 6(3) of the Cenvat Credit Rules, 2004 read with Rule 14 of the Cenvat Credit Rules, 2004 when the assessee had not opted for that course and had availed only proportionate credit on common input services.

Analysis: Rule 6 of the Cenvat Credit Rules, 2004 provides alternative modes for an assessee dealing with both taxable and exempted services, namely non-availment of credit for exempted services, maintenance of separate accounts, or payment of an amount under Rule 6(3). The choice lies with the assessee, and the department cannot impose its own option and demand the amount under Rule 6(3) through Rule 14. The record also showed that only proportionate credit on common input services had been availed, so no ineligible credit remained to be reversed on that basis.

Conclusion: The demand under Rule 6(3) of the Cenvat Credit Rules, 2004 was not sustainable and was decided in favour of the assessee.

Issue (ii): whether the service tax demand under the head of erection, commissioning and installation service for 2012-13 was sustainable when the invoices and tax payment records showed tax had been discharged under the appropriate service categories.

Analysis: The service records and chartered accountant's certificate showed that the assessee had rendered multiple categories of services, including works contract service and annual maintenance contract service, and had discharged service tax accordingly under the relevant heads. In that situation, the proposed demand treating the entire amount as short payment under erection, commissioning and installation service could not stand.

Conclusion: The service tax demand under erection, commissioning and installation service was not sustainable and was decided in favour of the assessee.

Issue (iii): whether differential service tax was payable on invoices raised before 01.04.2012 merely because payment was received after the rate increased, notwithstanding the Point of Taxation Rules, 2011 and the tax already paid during audit.

Analysis: Under the Point of Taxation Rules, 2011, the applicable rate depended on the point of taxation determined by the date of invoice, date of provision of service, and date of receipt of payment in the relevant situations. Only the portion of consideration received after 01.04.2012 for pre-01.04.2012 invoices attracted the higher rate. The assessee showed that differential tax had already been paid during audit for the amount actually liable at the higher rate, leaving no surviving balance demand.

Conclusion: The demand based on the alleged rate change after 01.04.2012 was not sustainable and was decided in favour of the assessee.

Final Conclusion: None of the three demands survived on merits, and the consequential levy of interest and penalties also fell with the principal demands; the appeal was allowed and the impugned order was set aside.

Ratio Decidendi: Where the statute gives an assessee alternative modes of compliance for taxable and exempted services, the department cannot substitute its own choice for that of the assessee, and a demand cannot survive when only proportionate eligible credit was taken and the applicable tax was already discharged under the correct taxation rules.

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