TaxTMI 
TaxTMI 
2024 (11) TMI 406
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....ng to Rs.3,86,40,986/- in computing the amount required to be reversed under the provisions of Rule 6(3) of Cenvat Credit Rules, 2004 (CCR, for short) on common input services used for providing both taxable as well as exempted services. Consequently, show-cause notice was issued to them on 18.04.2018 for recovery of the said amount of Rs.3,86,40,986/- along with interest and proposal for penalty. On adjudication, the demand was confirmed with interest and penalty of equivalent amount. Hence, the present appeal. 3. At the outset, the learned advocate for the appellant has submitted that the appellant are providing services which are both taxable as well as exempted and avails cenvat credit on inputs services used only for taxable service and also common for both taxable as well as exempted services. The appellant has reversed proportionate cenvat credit availed on common input services attributable to exempted services following the formula prescribed under the provisions of Rule 6(3A) of CCR, 2004. He has submitted that where input services are used fully for trading activities which are exempted, then the appellant will not qualify as provider of taxable service and accordingl....
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....ices during the financial year' was not limited to the common input services on which credit has been availed but also the credit exclusively attributable to taxable service also in the total cenvat credit taken by the appellant during the financial year. We find that this Tribunal in a series of cases, interpreting the provisions of Rule 6(3) of CCR, consistently held that the factor 'P' referred to in the said formula cannot be considered to mean the total cenvat credit taken in a financial year would also include credit taken on input services and exclusively utilised in providing taxable output services; thus, only the credit taken on common input services which are utilised in providing both taxable as well as exempted services to be considered for arriving at the proportionate credit attributable to exempted services when common input services are utilised for providing both taxable as well as exempted services. 8. The Tribunal in the case of ThyssenKrupp Industries India Pvt. Ltd. Vs. CCE&ST, Pune-I [Final Order No.A/85557-85558/2023 dated 10.02.2023], taking note of all the judgments on the subject, relevant rules and the amendment subsequently brought to Rule 6 in 2016,....
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....- (i) pay an amount equal to six per cent of value of the exempted goods and exempted services; or (ii) pay an amount as determined under sub-rule (3A); or (iii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment : Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable under clause (i) : Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be six per cent. of the value so exempted. Explanation I. - If the manufacturer of goods or the provider of output service, avails any of the opt....
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...., during the preceding financial year and D denotes total CENVAT credit taken on inputs during the month minus A; (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance upto the place of removal or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the preceding financial year, and G denotes total CENVAT credit taken on input services during the month." 16. Rule 6(1) of the Rules curtails the service provider from availing Cenvat credit on input services used for exempted services. This clearly means that credit is allowed to be taken only on input services pertaining to taxable services. In other words, wherever exempted services are rendered, the credit pertaining to such exempted service is not admissible and is required to be reversed. Rule 6(2) provides that wherever exempted....
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....ns of Rule 6 providing for reversal of credit in respect of input services used in exempted services, is being redrafted with the objective to simplify and rationalize the same without altering the established principles of reversal of such credit. It has been further clarified at paragraph (iv) of the Circular that the purpose of the rule is to deny credit of such part of the total credit taken, as is attributable to the exempted services and under no circumstances this part can be greater than the whole credit. 21. In this connection, reference can be made to the decision of the Tribunal in Reliance Industries, wherein while dealing with a similar issue, the Tribunal held that the term total Cenvat credit taken on input services in the pre-amended rule is only total Cenvat credit of common service and will not include the Cenvat credit on input/input services exclusively used for the manufacture of dutiable goods. The relevant portion of the decision is reproduced below : "7. We have carefully considered the submissions made by both the sides and perused the record. The limited issue to be decided in this case is that for the purpose of calculating the CENVAT cr....
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....ods manufactured or the exempted service rendered viz., trading. This should therefore, be apportioned. The adjudicating authority, therefore, erred in taking the total credit taken (including credit taken on inputs and input services used exclusively for manufacture of dutiable goods) to calculate the amount of CENVAT credit that must be reversed under Rule 6(3A). For the period April 2016 to June 2017, this was clearly, against the explicit rule position as laid down in Rule 6(3A)(b) discussed above. 28. Insofar as the period 2015- 2016 is concerned, during the relevant period, Rule 6(3A) (c) (iii) read as follows: (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance upto the place of removal or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on i....
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....ovision of exempted services viz., trading. The only option in respect of such services is to divide the credit on such input services in proportion to the value of the dutiable goods and exempted services and deny credit to the extent it is attributable to the exempted services using the formula under Rule 6(3A). Therefore, the total credit taken in the formula under Rule 6(3A) can only refer to such credit as is not covered by Rule 6(2), i.e., credit on common input services. Only such an interpretation is harmonious with the restriction on credit laid down under Rule 6(1) and the provision for maintenance of separate records under Rule 6(2). We do not find anything in the CENVAT Rules which prohibits an assessee from following Rule 6(2) in respect of the inputs and input services where it is feasible to maintain separate records and follow Rule 6(3A) in case of such inputs or input services where it is not feasible to do so. It would have been a different situation if the appellant had not followed Rule 6(2) at all and took credit on all the inputs and input services regardless of whether they are attributable to the manufacture of dutiable goods or provision of exempted service....