CENVAT Credit can be fully utilized for Payment of Service Tax Liability: CESTAT quashes Order against Vodafone [Read Order]

The Chennai Bench of Customs, Excise And Service Tax Appellate Tribunal (CESTAT) held that the CENVAT credit of all the input services and capital goods under rule 6(5) of the CENVAT Credit Rules, 2004 can be fully utilized for the payment of service tax liability.

The CESTAT bench quashed the order passed by the Commissioner against the Vodafone.

M/s. Vodafone Mobile Services Limited, the appellant assessee was a company engaged in the business of providing ‘telephone services’ (later known as ‘telecommunication services’) and the  Revenue  department suspected that the assessee was providing both taxable and exempted services, and issued a Show Cause Notice to recover the excess credit utilized.

The commissioner of income tax (Appeals) passed an order that the asseesse was liable to pay the excess credit utilized service tax. Thus the asseessee appealed against the order of commissioner.

Ms. Krithika Jaganathan, the counsel for the assessee contended that no service tax was payable on Interconnect usage charges (IUC) charges, and that Rule 6(4) of the Cenvat Credit Rules should have been invoked. It was also submitted that the capital goods are used exclusively for exempted goods or services, not suppression.

Smt. K. Komathi, the counsel for the department contended that once the service provider is not able to maintain a separate account for both taxable and exempted service and when the input services, inputs and capital goods are common for both the categories, the service provider was entitled to utilize the Cenvat credit to the extent of 20% of the service tax payable on the output taxable service as per Rule 6 (3) (c) of Cenvat Credit Rules, 2004.

It was also submitted that no CENVAT credit was eligible only if the capital goods are used exclusively in the manufacture of exempted goods or in providing exempted services.

The two member tribunal bench comprising of Mr. P. Dinesha, Member (Judicial) And Mr. Vasa Seshagiri Rao, Member (Technical) held that the ceiling of 20% of the service tax payable on utilization of credit for payment of service tax should be compared to the utilization of credit other than capital goods credit and service tax credit in respect of input services.

The appeal was allowed as the Revenue had not adduced any documentary evidence to justify its allegation of wilful suppression of facts.

To Read the full text of the Order CLICK HERE

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