The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai bench has held that lack of segregation of credit taken on ‘input services’ will restrain the application of correct ratio as per CENVAT Credit Rules.
The appellant, in the business of ‘engineering, procurement and construction (EPC)’ contracts were assessed for ‘taxable services’ rendered to their clients and also procures goods as ‘trading’. Proceedings were initiated against the appellant for applying, instead of the proportion that value of ‘exempted services’ bore to the value of ‘total services’ to the total credit availed, the proportion that value of ‘exempted services’ bore to the value of ‘total services’ to the credit availed on ‘input services’ used in common only.
The appellant claimed for the discarding of the determination in the impugned order upon correct segregation of credit taken on ‘input services’ between eligible and ineligible except to the extent that the formula had to resort while the Revenue contended upon the lack of segregation of the entire credit.
The case hinges upon the extent to which the credit arising from ‘input services’ used in common is distinguishable from ‘total CENVAT credit’; the spectrum of such credit may extend anywhere between ‘nil’ and the entirety of CENVAT credit with the gap increasing upon account of each service in the manner prescribed in rule 6(2) of CENVAT Credit Rules, 2004.
It was observed that the total Cenvat credit for formula under Rule 6 (3A) is only total Cenvat credit of common input service and cannot include Cenvat credit on input service exclusively used for the manufacture of dutiable goods. It was clear from the underlying object of the amendment made in Rule 6 (3 A) of the Rules by Notification dated March 1, 2016, that to consider only common input service and not total input service credit, to compute the amount of reversal.
Mr C J Mathew, Technical Member observed that there were no submissions during the hearing nor of the proceedings before the lower authorities indicating partial segregation or the correctness of it and the principle alone can be established with the consequent impact on the recovery to be quantified upon presentation of the segregated accounts and verification in absence of such records.
The Tribunal set aside the impugned order and the re-computation of 2014-15 was restored to the original authority. The appeal was disposed of by remand. Shri Udayan Chokshi appeared for the appellant and Shri S K Hatangadi appeared for the respondent.
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