No bar to Avail Cenvat Credit in excess of 20 % as Restrictions under Rule 6(3)(c) was Omitted after 2008: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) of Ahmedabad has held that no bar to avail cenvat credit in excess of 20 % as restrictions under Rule 6(3)(c) was omitted after 2008. It was viewed that even if Rule 6(3)(c) puts restrictions on an assesse for utilization of Cenvat credit in excess of 20% in a particular financial year, the assesse would be eligible to avail 100% credit in the subsequent years as after 2008 the said restriction was ommitted.

Rishi Kiran Logistics P Ltd, the assessee is a service provider and is registered under the categories of Storage and Warehousing services, Cargo handling services, Goods transport agency. The assessee is also availing Cenvat credit of service tax paid on various input services. The assessee is engaged in generating electricity which falls under CETSH ( Central Excise Tariff Sub Heading ) 27 16 0000 which is not leviable to excise duty.

During the audit of records of the assessee such as ST-3 returns for the period 200708, Cenvat credit account up to October-2008 and balance sheet for the year 2007-08, it was observed that under the head income, the assessee had shown "electricity generating receipt" of Rs. 1,47,99,356/- and under the head of "other income" in schedule "O" to the profit and loss account, the assessee had shown to have earned Rs. 91, 24,000/- by raw salt sales.

The assessee had availed Cenvat credit of service tax paid in respect of terminal charges, Stevedoring services, Telephone Service, Mobile Services, courier services, Travel services, etc. as input services. Out of these services many services except Stevedoring services, survey charges, terminal charges, etc. are common input services which have been used for taxable as well as exempted goods/ services. 

 As per definition of exempted goods and exempted services given in Rule 2(d) and 2(e) of Cenvat Credit Rules, 2004, the electricity generated by assessee is not leviable to duty and comes under exempted goods. So also the sale of raw salt is an activity of trading which is an exempted service. In term of Rule 6 an assessee is prohibited from availing Cenvat credit on exempted goods and exempted services. On verification of accounts of the assessee it was noticed that the assessee has availed Cenvat credit of common input services used for taxable as well as exempted goods/services.

The assessee had not maintained separate accounts as required under sub Rule (3) of Rule (6) of Cenvat Credit Rules, 2004. The department was of the view that as the assessee has not maintained separate accounts, and has not intimated about option to reverse proportionate credit, the assessee is  liable to pay an amount equal to 5%/6% of the value of the exempted goods as provided under Rule 6(3A) (i) of the Cenvat credit Rules, 2004.

A show cause notice was issued proposing to disallow and recover the wrongly availed credit as well as the credit utilised in excess of the permissible limit of 20% along with interest and for imposing penalties. After due process of law, the Original Authority vide order impugned herein confirmed the duty of Rs. 72,18,957/- being the wrongly availed credit in respect of common input services used for taxable and exempted services ( trading ).

Shri Amal Dave appeared and argued for the Assessee. The first issue is with regard to the appeal filled by the department in respect of service tax of Rs. 59,32,265/-. for the period 2007-08. The Original Authority dropped the demand proposed in the show cause notice which was raised alleging utilization of credit in excess of the 20% as provided under Rule 6(3)(c) Cenvat Credit Rules, 2004. It is the contention of the department that the Adjudicating Authority has wrongly dropped the demand by considering the issue relating to trading of raw salt only.

The department contended that as the assessee is engaged in generating and selling electricity also the same has to be considered as exempted goods. The department has filed appeal against the impugned order on the ground that the adjudicating authority while dropping the demand of Rs. 59,32,265/- has not given any specific findings with regard to manufacture/ sale of electricity.

 It was submitted that even if Rule 6(3)(c) puts restrictions on an assesse for utilization of Cenvat credit in excess of 20% in a particular financial year, the assesse would be eligible to avail 100% credit in the subsequent years as after 2008 the said restriction was ommitted. Therefore, when 80% remaining credit would be available in the next financial year and when many years have been passed since the dispute arose, the demand has been correctly dropped.

Shri R K Agarwal, Superintendent (AR) appeared and argued for the department.  The Tribunal observed in the said case that an assessee during the said period was not barred for from taking credit but was only barred utilizing it. Further an assessee would be free to utilize remaining 80% in the subsequent financial year.

A two member bench comprising Ms Sulekha Beevi C S Member ( Judicial ) and Mr C L Mahar Member (Technical) observed that the SCN has been issued in this regard for the period 2007-08. After such lapse of time, the demand raised alleging that the assessee has utilized in excess of 20% prior to 01.04.2008 appears to be purposeless as the assessee would be eligible to utilize the entire credit in subsequent financial years.

The Tribunal upheld the order passed by the Original authority dropping the demand and the issue is found in favour of the assessee and against the Revenue.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates