Demand under Rule 6(3) of CCR not Sustainable on Reversal of Cenvat Credit on Input Services to Exempted Services: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), observed that the demand under Rule 6(3) of Cenvat Credit Rules, 2004 (CCR) not sustainable on reversal of cenvat credit on input services to exempted services.

The issue involved in the present case is that whether the appellant, Magnam Netlink Private Ltd, is liable to pay an amount equal to 6%/7% of the value of exempted services viz. “Trading” as per Rule 6 (3) of Cenvat Credit Rules, 2004 for not maintaining separate records nor reversing the cenvat credit at 6%/7% of the value of exempted services. It is the case of the department that the appellant did not follow the procedures for reversal of cenvat credit as laid down under Rule 6 (3) of CCR but on being pointed out by department, reversed the credit on proportionate basis.

Saurabh Dixit, counsel appearing on behalf of the Appellant submitted that the appellant has taken common credit which is very negligible, and availed by the them during the period April, 2013 to June, 2017. This issue was raised in the EA 2000 audit however, on pointing out by the auditor paid the entire amount of credited along with interest which is recorded in audit report no. 151/2018-19. In this position, the demand of 6%/7% of the value of exempted services will not sustain.

Rajesh Nathan, Assistant Commissioner (AR) appearing on behalf of the Revenue reiterated the finding of the impugned order.

A Two-Member Bench of the Tribunal comprising Ramesh Nair, Judicial Member and CL Mahar, Technical Member observed that “We are of the view that once the assessee reversed the cenvat credit on the input services attributed to the exempted services, the demand under Rule 6 (3) of CCR is not sustainable. We also find that since in the show cause notice demand was raised at of 6% /7% and not considered the reversal of cenvat credit, the matter needs to re-considered only for the limited purpose of quantification and correctness of reversal of cenvat credit along with payment of interest.”

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