The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Allahabad recently quashed a Service Tax Demand of Rs.36 Lakh against HCL Technologies in light of the observation that the HCL had rightly availed CENVAT Credit as per the formula prescribed under Rule 6(3A) of CENVAT Credit Rules, 2004 (CCR).
The Service Tax Appeal was instituted before CESTAT by global tech-colossus Hindustan Computer Limited Technologies ( HCL ). HCL, being a multi-disciplinary conglomerate, is involved in the provision of ‘Information Technology Software Service’ and pays service tax under Reverse Charge Mechanism (RCM) while discharging its output tax liability as per CCR.
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The Appellant is also involved in the trading of goods such as computer hardware and network equipment, which are exempted services and thus no CENVAT Credit of Service Tax was availed by the Appellant for the input services involved in such trading activity.
HCL follows a proportionate credit reversal method under Rule 6(3A) of the CCR to adjust credits associated with both taxable services and exempted trading activities, such as the sale of computer hardware.
Following an audit of HCL’s accounts for the period between April 2013 to March 2014, the tax authorities issued a Show Cause Notice demanding an additional tax payment of Rs.36,59,837 claiming that the Appellant had taken into consideration only the ‘common input services’ used both in taxable and exempt services instead of accounting the ‘total CENVAT credit’ used on all input services such as rental, security and housekeeping used in furtherance of taxable and exempt services.
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CESTAT laid down that the key dispute was whether the CENVAT Credit availed on input services and used exclusively for facilitating taxable output services was required to be included while apportioning the common credit between the exempted goods and taxable services.
The two-member Bench of CESTAT, Allahabad constituted by P. K. Choudhary, Judicial Member and Sanjiv Srivastava, Technical Member observed that the objective of Rule 6(3A) of the CCR is to consider only common input services and not total input service credit, for the purpose of computing the amount of reversal.
In light of such observation, CESTAT quashed the impugned order proposing the Service Tax Demand of Rs.36 Lakh citing the same to be erroneous and unsustainable.
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