CENVAT Credit Denial Unsustainable Without Evidence Of Exclusive Use For Exempt Services: CESTAT [Read Order]
The Tribunal reiterates that CENVAT credit cannot be denied unless the Department proves exclusive use of inputs for exempt services.
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that denial of CENVAT credit is not permissible unless the Department proves that the input services were exclusively used for providing services which are exempted.
The appellant Shree Venkatesh Films Pvt. Ltd., which is involved in the business of film production TV content creation and digital distribution of cinema. The appellant has availed CENVAT credit on various input services during the relevant period, which include professional services production services, and other support services.
The Department issued a show cause notice to the appellant on the premise that the appellant’s output services include some services which were in the nature of exempt services and therefore, the CENVAT credit availed on the common input services would not be admissible. The Department proposed the denial of credit on the premise that the assessee has failed to maintain separate accounts for taxable services and exempt services as required under Rule 6 of the CENVAT Credit Rules, 2004.
The demand along with interest and penalties has been confirmed by the adjudicating authority on the premise that the credit availed on the input services in question would be liable to be reversed on the basis of the services being exempt services.
The assessee submitted that the Department had not been able to point out any specific input service that was used exclusively for the services that were exempted. It was also contended that the input services are general services that are used for both taxable and non-taxable services, and the mere existence of non-taxable turnover does not warrant the disallowance of the CENVAT credit.
Further,it was contended by the assessee that the onus lies on the Revenue Department to establish the exclusive use of the input services for the non-taxable services. Without the establishment of the exclusive use, Rule 6 could not be applied in an automatic manner.
The revenue argued that the services having been provided hence, the credit had to be reversed in proportion and the non-maintenance of accounts warranted the disallowance.
The bench comprising P.K. Choudhary[Judicial Member] and K. Anpazhakan[Technical Member] observed that CENVAT credit is a beneficial scheme and it should not be denied based on assumptions and presumptions. It should be clearly established that exclusive use of input services for exempt services.
The tribunal observed that the Department had not produced any evidence of documentary and factual nature to prove that the input services in dispute had been used exclusively for exempt activities. It also observed that the mere mention of exempt turnover and balance sheet figures would not be sufficient. Hence, it set aside the disallowance of CENVAT credit along with consequential interest and penalties.
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