In case an assessee is providing Taxable and Non Taxable including Exempted Services and do not keep separate records, 3(5) of the Service Tax Credit Rules 2002, provided that credit can be utilized to the extent of 35% of the of the Total Service Tax Payable. The corresponding provision: Rule 6(3)(c) of the Cenvat Credit Rules, 2004. At present the restriction is 20%.
In view of the provision of these rules, a question has been raised before the tribunal that whether the limit of 35% (Now 20%) is absolute and after utilizing the credit to the extent of 35% (now 20%) the balance amount would lapse or would be allowed to be carried forward and can be utilized further.
In the matter of M/s VIJAYANAND ROADLINES LTD. Versus COMMISSIONER OF C. EX., BELGAUM reported in 2007 -TMI - 1450 - CESTAT,BANGALORE, honorable tribunal has held that rule 3(5) [now rule 6(3)(c)] does not provide any restriction on utilization of remaining part of cenvat credit in the succeeding period and therefore the assessee can carry forward the unutilized amount (after setting off of 35% or 20%) and use to pay service tax.
CBEC has issued a Circular No. 77/07/2004, Dated March 10th, 2004 clarifying the issue Clarification on ambiguity in the provisions of Rule 3(5) of the Service Tax Credit Rules, 2002.
Honorable tribunal has also take a note of this circular and said there is nothing in this circular also to restrict the assessee from carrying forward and utilization of cenvat credit after utilizing the amount upto 35% (not 20%).
Also see: Cenvat Credit Practice Manual - Chapter 9B - Exempted Services - Service Provider