The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that sufficient compliance of Cenvat Credit Rules, 2004 ( CCR ) is complete on reversal of cenvat credit on common input services.
During the course of audit of the records of the appellants it was observed by the Department that the appellants were availing Cenvat credit of service tax paid on input services which were used by them for provision of taxable output services as well as exempted output services, and it was claimed by the department that no separate records regarding receipt and utilisation of these common services were maintained by the appellants.
The Advocate for the appellants submitted that, in relation to input services that were received and utilised solely for taxable services, the appellants had availed Cenvat credit. As regards, common input services used for both taxable and exempt services, the appellants have segregated the same by apportioning to various projects and the head office. These common input services are primarily in the nature of man power supply services, security services, telephone services, legal consultancy services etc. The Cenvat credit amount in respect of such services were apportioned between the taxable sites/projects and exempt sites/projects on the basis of the turnover of each project.
The AR submitted that the appellants has not followed the procedure prescribed under Rule 6(3A) of the Central Credit Rules, 2004, as the statue makes them incumbent to follow the prescribed procedure as per Rules 6(2) and 6(3) ibid. He also stated that the appellants’ claim that the entire Cenvat credit used for the exempt projects/ sites having been reversed would tantamount to non-availing of Cenvat credit cannot be accepted, as it is not as per prescribed procedure.
The disputed period in both the SCNs dated 17.06.2016 and 24.02.2017 relate to FY 2011-12 to 2015-16. Sub-rules (2) and (3) to Rule 6 of CCR was amended vide Notification No.13/2016-C.E. (N.T.) dated 01.03.2016, to be introduced with effect from 01.04.2016. Hence, for the purpose of these appeals before us, the relevant legal provisions of Rule 6 of CCR, is as it stood prior to the above amendment.
The Supreme Court in the case of Chandrapur Magnet Wires (P) Limited, had held that in case where an assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final product that are exempted, and subsequently makes a debit entry in respect of exempt final product, then this debit entry would make such credit entry stand deleted in the accounts of the assessee, maintaining that in effect no Cenvat credit was taken in respect of exempt final products.
A Two-Member Bench comprising S.K. Mohanty, Member ( Judicial ) and M.M. Parthiban, Member ( Technical ) observed that “In view of the above facts of the case and the judgement delivered by the Supreme Court, it cannot be said that the appellants had incorrectly availed and utilised CENVAT credit, inasmuch as the appellants had not taken Cenvat credit in respect of exempt projects/services and had also reversed the Cenvat credit in respect of common input services, duly informing the department with complete details. Further, in view of the above judgement of the Hon’ble Apex Court, it could be concluded that the reversal of Cenvat credit in respect of common input services by the appellants is sufficient for compliance with the Cenvat Credit Rules, 2004.”
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