2022 (11) TMI 1070 - AT - Central Excise
Recovery of CENVAT Credit u/r 6 of the Cenvat Credit Rules 2004 along with interest and penalty - common input services used for rendering Erection, Commissioning and Installation Services provided in Jammu and Kashmir - exempt services or not - non-maintenance of separate records - HELD THAT:- Undisputedly the appellants have used common input services for providing services in State of Jammu & Kashmir and other parts of India. The proviso to sub-clause (2) of Rule 1 of Cenvat Credit Rules states that ‘nothing contained in these rules relating to availment and utilization of credit of service tax shall apply to the State of Jammu and Kashmir’. Again, as per Section 64 of the Finance Act, 1994, the Act extends to the whole of India except the State of Jammu & Kashmir. Thus, there is no levy of service tax on the services provided in Jammu & Kashmir. The Department has construed or rather confused the services rendered in Jammu & Kashmir to be exempted services.
Sub-clause (2) of Rule 6 of Cenvat Credit Rules, 2004 speaks about the situation when the service provider is rendering output services which are chargeable to tax as well as exempted services. The services rendered in Jammu & Kashmir are not chargeable to service tax and therefore, are not taxable services. But this does not make them exempted services also. A service becomes an exempted service when by notification or law, the service tax payable on such service is exempted. Rule 6(2) does not apply to a situation where the service provider renders both taxable services and services which are not subject to service tax. The law is silent in this regard. The Department cannot construe the services provided to Jammu & Kashmir as exempted services and press into application, in such situations, Rule 6 of Cenvat Credit Rules, 2004.
In the present matter appellant already reversed the proportionate Cenvat Credit attributable to the said disputed service. Therefore, the appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of Cenvat Credit Rules, therefore demand @ 5% / 6%/ 7% cannot be demanded. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services.
The Learned Commissioner had rightly dropped the demand and granted the relief to the respondent. Hence, the Revenue has not made out any grounds before us to interfere with the impugned order.
Appeal of Revenue dismissed.