Excess Utilized Credit cannot be Demanded, as Rule 6(3)(c) of CCR is silent on Period during which 20% Credit shall be Utilized: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), noted that excess utilized credit cannot be demanded, as Rule 6(3)(c) of Cenvat Credit Rules, 2004 ( CCR ) is silent on the period during which 20% credit shall be utilized.

M/s Avaya Global Connect Ltd. (presently known as M/s Black Box Ltd., the appellant) is a manufacturer of EPABX System and has provided taxable services of “Erection Commissioning and Installation”, Maintenance or Repairs” etc.

It was found that the Appellant had not maintained a separate account in respect of receipt, consumption and inventory of input services meant for use in providing output services which were chargeable to tax as well as exempted service, as provided under Rule 6(2) of Cenvat Credit Rules, 2004, but they had availed Cenvat Credit on the entire input services received by them.

Thus, as per the condition of clause (c) of Rule 6(3) of Cenvat Credit Rules 2004 w.e.f. 10.09.2004 appellant was required to utilize credit only to the extent of an amount not exceeding 20% of the amount of Service tax payable on taxable output services. It was noticed that the appellant had utilized Cenvat Credit of more than the admissible amount i.e. 20% /35% of the amount of Service tax payable on taxable output services.

P P Jadeja, Consultant for the appellant submitted that the sub-contractor had provided services to clients in Jammu and Kashmir and the appellant has not taken credit of input services used in providing services by sub-contractors stand established. The demand in terms of Rule 6(3)(C) of the Cenvat Credit Rules is illegal.

The Counsel argued that it is a settled legal position that in cases where an assessee had not maintained separate accounts for Cenvat Credit attributable to taxable services and exempted services and Cenvat Credit for all inputs services was taken, then on paying back the amount of Cenvat Credit attributable to the exempted services, the situation was as if no Cenvat Credit was taken by the assessee of exempted services.

Tara Prakash, Deputy Commissioner (AR) representative reiterated the findings in the impugned order.

The Coram consisting of Ramesh Nair, Judicial Member and Raju, Technical Member observed that “It is true that during the relevant period, only 20% of credit could be utilized but we find force in the argument of the appellant that they were not barred from taking credit but were only barred from utilizing it. They were free to utilize the remaining 80% in the immediate next financial year.”

The Bench also relied on the judgment in Vijayanand Roadlines Ltd. v. CCE, Belgaum, wherein it was held that “the excess utilized credit cannot be demanded, as Rule6(3)(c) is silent with regard to the period during which the 20% credit shall be utilized “.

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