In the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai has held that the total Cenvat credit for the purpose of formula under Rule 6 (3A) of Cenvat Credit Rules, 2004 is applicable only on common input services and set aside the demand of service tax.
M/s.Toshiba JSW Power Systems Private Ltd, the appellant is engaged in the trading of spares and accessories of “Turbines”. They are also registered with the Service Tax Commissionerate. The appellant undertakes the manufacture of the Turbine and erection and installation of the same at the project sites of the customers.
In the course of such activity, they procure bought-out items through high-sea sales and local procurements. Supply of these materials is a trading activity on the value of which CST is also paid by the appellant.
The department noticed that the appellant had short-paid the amount of Cenvat credit that has to be reversed by them under Rule 6 (3) of Cenvat Credit Rules, 2004 in respect of exempted services. On perusal of the records produced before the audit, it was noticed that the appellant availed Cenvat credit on common input services. They had opted to exercise the option of paying the amount as determined under sub-rule (3A) of Rule 6 of CCR 2004.
While doing so, they had not adopted the formula correctly and this non-adoption of the correct formula resulted in a short reversal of Cenvat credit as required under Rule 6 (3) of CCR 2004. Thus the appellant was liable to reverse an amount of Rs.6,63,93,170/- for the period 2012-13 to 2014-15.
Show cause notice was issued proposing to demand the amount which ought to have been reversed by them on the proper application of the formula along with interest and also for imposing penalties. Secondly, it was also noticed that the appellant had a short-paid service tax under ‘Business Auxiliary Service (BAS)’ for the services rendered to NTPC.
The notice proposed to demand the short-paid service tax along with interest and also for imposing penalties. After due process of law, the original authority confirmed the amount on account of the reversal of Cenvat credit as required under Rule 6 (3) of CCR along with interest and also imposed an equal penalty. The demand for service tax under the BAS category was also confirmed along with interest and a penalty was imposed under section 76 of the Finance Act, 1994.
The show cause notice was issued on the allegation of non-adoption of the correct formula for the purpose of reversal of credit under Rule 6 (3A) of CCR 2004 and short payment of service tax. The original authority confirmed the demand along with interest and imposed a penalty under Section 76 of the Finance Act, of 1994. On appeal, the Commissioner (Appeals) Order-in-Appeal upheld the OIO.
Further, CBEC Circulars are in favour of the appellant and are binding on the Department. In the circular, it has been clarified that sub-rule (2) and sub-rule (3) of Rule 6 of the erstwhile CCR 2002 will apply in respect of common inputs and input services and will not apply in respect of inputs used exclusively for the manufacture of exempted final products. The issue is about a formula that has to be adopted for reversing the credit as required under Rule 6 (3) of CCR 2004.
A Coram comprising of Ms Sulekha Beevi C S, Member (Judicial) and Mr M. Ajit Kumar, Member (Technical) observed that the whole Rule 6 (1) (2) (3) has to be read harmoniously and conjointly and it would be clear that total cenvat credit for the purpose of formula under Rule 6 (3A) is only the total cenvat credit on common input services and will not include cenvat credit on input/output services exclusively used for the manufacture of dutiable goods. If the interpretation of the Revenue is accepted, it would result in an anomaly that the cenvat credit which is availed for the manufacture of dutiable goods also will get disallowed.
The CESTAT set aside the demand raised alleging non-adoption of the correct formula for reversal of cenvat credit under Rule 6 (3) of CCR only and partly allowed the appeal.
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