Reversal of CENVAT Credit Equivalent to Non-Availment: CESTAT Sets Aside Rs. 1.11 Crore Service Tax Demand [Read Order]

The Kolkata Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that proportionate reversal of CENVAT credit amounts to non-availment, rendering the 6%/5% payment demand under Rule 6 of the CENVAT Credit Rules legally unsustainable.

It ruled that in cases of wrongful availment, recovery can only be made under Rule 14 and authorities cannot compel the Rule 6(3) option. The extended period demand was also quashed for absence of suppression, though a minor RCM demand was upheld with only interest payable.

The Appellant, M/s Skipper Ltd., engaged in providing taxable services under category of 'Erection, Commissioning or Installation Service', 'Execution of Work Contract Service', 'Transportation of goods by Road Service' and 'Business Support Service', filed an appeal arising out of Order-in-Original No. 70/COMMR/ST-II/KOL/2016-17 dated 23.09.2016 passed by Commissioner of CGST & Central Excise, Kolkata.

The Appellant provided taxable services as well as exempt services during 2009-10 to 2012-13. On the ground that common input service credit was availed for both taxable and exempt services, Show Cause Notice dated 21.10.2014 was issued invoking extended period, demanding Rs. 1,11,40,506/- at 6%/5% of exempted service value under Rule 6 of CENVAT Credit Rules, 2004. Additionally, Rs. 4,90,476/- was demanded on RCM basis for import of services.

The Rule 6 of CENVAT Credit Rules, 2004 explained that: Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.

“(1) The CENVAT credit shall not be allowed on such quantity of input as is used in or in relation to the manufacture of exempted goods or for provision of exempted services or input service as is used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services and the credit not allowed shall be calculated and paid by the manufacturer or the provider of output service, in terms of the provisions of sub-rule (2) or sub-rule (3), as the case may be :

Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.”

The Appellant stated that no CENVAT credit was taken on Erection and Commissioning services where 33% abatement was claimed, and proportionate credit of Rs. 2,32,871/- attributable to common services had already been reversed in November 2013 with CA certification. The Adjudicating Authority confirmed the demands with interest and penalties, against which the present appeal was filed.

The Counsel for the Appellant, Kartik Kurmy, submitted that they had reversed proportionate credit of Rs. 2,32,871/- on 30.11.2013 before the SCN, disclosed in ST-3 returns and certified by Chartered Accountant. On limitation, it was submitted that the SCN was based on scrutiny of books and returns with no suppression warranting extended period invocation.

Further, the Counsel relied on Park Hospitals Vs. CST reported in 2025-VIL-223-CESTAT- KOL-ST, Tiara Advertising Vs. UOI reported in 2019 (30) G.S.T.L 474 (Telangana), Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CCE reported in 2009(248) E.L.T 514 (Tri. Chennai) and M/s Texmaco Rail & Engineering ltd Vs. CGST & EX reported in 2021-VIL-626-CE-CESTAT-KOL-CE stated that reversal amounts to non-availment, making the 6%/5% levy unsustainable. If credit was wrongly availed, Rule 14 permits recovery but authorities cannot impose 6%/5% payment under Rule 6(3).

On the other hand, the Counsel for the Respondent, A. Mukherjee, Authorized Representative, reiterates the findings of the Adjudicating authority and justifies the confirmed demand.

The Tribunal consisted of Judicial Member, R. Muralidhar and Technical Member, K. Anpazhakan, heard and reviewed the matter.

The Tribunal, after considering the submissions made, held that reversal of CENVAT credit is equivalent to non-availment. Rule 6(3A) and 6(3AA) mandate a liberal approach to proportionate credit reversal. Following the above mentioned precedents, the Tribunal ruled that reversal of credit amounts to non-availment, rendering the 6%/5% levy of Rs. 1,11,40,506/- legally unsustainable and accordingly set aside the same.

The Tribunal also held that authorities cannot foist the 6%/5% payment option under Rule 6(3) upon assessees; if credit is wrongly availed, Rule 14 permits recovery of such credit only. On limitation, the Tribunal noted that demands were quantified from P&L accounts, balance sheets, and returns filed by the registered assessee.

The department failed to establish suppression with intent to evade tax. The extended period demand was set aside. The RCM demand of Rs. 4,90,476/- was upheld as revenue-neutral with penalty waived and only interest recoverable under Section 75 of Finance Act, 1994.

Thus, the Tribunal allowed the appeal filed by the appellants which would be eligible for consequential relief. The Order was pronounced in the open court on 04.11.2025.

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