2019 (6) TMI 903 - AT - Service Tax

Utilization of CENVAT Credit - Rules 6 of CENVAT Credit Rules - Whether the appellant could avail of the full Cenvat, and utilize 20% of the same while carrying forward the balance 80%, under erstwhile Rule 6(3)(c) of Cenvat Credit Rules, even though they were providing both taxable as well as exempted services?

HELD THAT:- A plain reading of the above provisions indicate that while Rule 6(1) provides that the manufacturer or provider of output service is not entitled for the credit of such quantity of input or input services which are used in the manufacture of exempted goods or exempted service except in the circumstances mentioned in the sub-rule (2) of the said Rules. Sub-rule (2) of Rule 6 provides for maintenance of separate records in respect of inputs, input services substantiating use of input and input services for taxable and exempted goods or services. Sub-rule (3) of Rule 6 provides that in case separate accounts are not maintained, the manufacturer or provider of services shall follow either of the conditions stipulated in sub-rule (3) of Rule 6. It is pertinent to note that after the amendment the only change that could be seen in respect of sub-rule (3) is to the extent of payment in respect of exempted goods produced or exempted services provided.

While there is a cap on the utilisation of credit attributable to exempted goods or services, there is no cap whatsoever on the availment of CENVAT credit and there is no mention of any lapse of credit after utilisation of credit of 20% prior to 1.4.2008 or after payment of requisite percentage of value after 1.4.2008. Just because the services provided by the appellants have become taxable with effect from 1.4.2008, it cannot be said that the credit already availed and accrued shall lapse. As submitted by the appellants, we find that sub-rule (3) of Rule 6 begins with a word ‘Notwithstanding anything contained in sub-rules (1) and (2)’. The only inference that can be drawn from the non obstante clause is that the provisions of Rule 3 have an overriding nature.

The provisions of sub-rule (3) of Rule 6 is very clear that if the provider of output services does not maintain separate accounts, the only restriction is placed is on the extent of utilisation of credit and there is no provision which provides that the balance of credit, if any, shall lapse.

It is seen that Tribunal in DHL LOGISTICS PVT. LTD. VERSUS CCE [2015 (7) TMI 1039 - CESTAT MUMBAI] has concluded the issue independently and sought to reinforce the decision on the basis of the purported circular. Therefore, we find that the existence or otherwise of the circular is inconsequential. However, it is not clear as to why Madurai Commissionerate has issued such a Trade Notice based on the Circular and as to whether the same was withdrawn subsequently. However, as we find that the appellants claim to the unutilised credit is correct on merits, we do not find any reason to go into the circular.

Time Limitation - HELD THAT:- Understandably, the show-cause notices must have been issued after detailed scrutiny of the ST-3 returns. Once such show-cause notice is issued, it is not open for the department to rake-up the issue on a different preposition invoking extended period - the show-cause notice and Order-in- Original does not survive on time bar issue also.

Appeal allowed - decided in favor of appellant.