2025 (7) TMI 1544 - AT - Service Tax

Interpretation of statute - Rule 6(3A) of the CENVAT Credit Rules 2004 - proportionate reversal of CENVAT Credit on input services used in taxable as well as exempt services - Secure Socket Layer Certification (SSLC) and Digital Signature Certificate (DSC) Services are exempted or not - value of export services adopted by the Appellant for reversal of provisional credit - penalty imposed u/r 15(1) of CCR 2004 read with Section 76 of the Finance Act 1994. Whether the Secure Socket Layer Certification (SSLC) and Digital Signature Certificate (DSC) Services are exempted? - HELD THAT - The above issue has been answered by the Chennai Tribunal in the Appellant s own case in Sify Technologies Ltd. Versus Commissioner of C.EX. S.T. LTU Chennai 2018 (6) TMI 644 - CESTAT CHENNAI wherein it was held that Secure Socket Layer Certification (SSLC) and Digital Signature Certificate (DSC) Services stood exempted for the period from 16-5-2008 onwards till 30-6-2012 covering the period in dispute and in compliance with the judicial discipline the same is necessarily to be followed. Therefore the issue is answered against the revenue. Whether under Rule 6 (3A) of the CCR 2004 total CENVAT credit should be subjected to proportionate reversal or only the common input services credit? - HELD THAT - The Tribunal in the case of Reliance Industries Ltd. 2019 (3) TMI 784 - CESTAT AHMEDABAD Ahmedabad had considered the issue as to interpreting the term total CENVAT credit given in the formula. It was held that 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/input 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 manufacture of dutiable goods also will get disallowed. From the case law discussed and also by the amendment of the Rule 6(3A) of CCR 2004 wef 1.4.2016 retrospectively as per clarification issued in TRU Circular 334/8/2016-TRU dated 29.02.2016 it is concluded that the common credit is only to be considered for reversal of credit under Rule 6(3A) and not Total credit availed by the Appellant - the main issue is answered squarely in favor of the Appellant and against the Revenue. Whether penalty imposed under Rule 15(1) of CCR 2004 read with Section 76 of the Finance Act 1994 is justified? - HELD THAT - The Respondent vide Impugned Order in Original Number LTUC/331/2013 dated 26.09.2013 has confirmed the demand along with interest appropriated the amount provisionally reversed by them under Rule 6(3A) and imposed penalty of Rs.10, 00, 000/- under Section 76 of the Act. Whatever the practice of accounting adopted by the Appellant cannot be faulted with as he was not availing any input service credit in those SBUs which are involved in trading or exempted services. The services of those SBUs dealing in Finance Corporate Administrations and Human Resources Department are common to all other SBUs necessitating reversal of common Cenvat credit of these SBUs. Further as the main issue is thus settled in favor of the Appellant and as such there is no justification for imposing any penalty. It is ordered to set aside the penalty. The demand confirmed against the appellant cannot sustain and hence ordered to be set aside. However there is a need to recompute the amount of credit to be reversed in terms of provisions of Rule 6(3A) of the CENVAT Credit Rules 2004 - the matter is remitted back to the Original Adjudicating Authority for re-computation of the amount of common credit and the credit to be reversed under the Rule 6(3A) of the CCR 2004. Appeal allowed by way of remand.

Summary

ISSUES:

Whether Secure Socket Layer Certification (SSLC) and Digital Signature Certificate (DSC) services are exempted for the relevant period.Whether the value of export services adopted for reversal of provisional credit was incorrectly taken twice as alleged in the Show Cause Notice.Whether under Rule 6(3A) of the CENVAT Credit Rules, 2004, the total CENVAT credit or only the common input services credit should be subjected to proportionate reversal.Whether the penalty imposed under Rule 15(1) of the CCR, 2004 read with Section 76 of the Finance Act, 1994 is justified.

RULINGS / HOLDINGS:

The Secure Socket Layer Certification (SSLC) and Digital Signature Certificate (DSC) services were held to be exempted for the period from 16-05-2008 till 30-06-2012, covering the period in dispute, and this binding precedent was followed.The appellant's rectification of the export services value, removing the alleged double counting, was accepted and found not to alter the excess reversal of credit already made.The Court held that under Rule 6(3A) of the CCR, 2004, the term "total CENVAT credit" in the formula refers only to the "total common CENVAT credit" attributable to input services commonly used for both taxable and exempted services; it does not include credit on input/input services exclusively used for taxable services. This interpretation is supported by authoritative Tribunal and High Court decisions and the retrospective clarificatory amendment made by Notification dated 01-03-2016.The penalty imposed under Rule 15(1) of the CCR, 2004 read with Section 76 of the Finance Act, 1994 was set aside because the appellant had provisionally reversed the common credit and there was no justification for penalty in light of the main issue being decided in the appellant's favor.

RATIONALE:

The Court applied the provisions of Rule 6(3A) of the CENVAT Credit Rules, 2004, which prescribe the procedure for determination and payment of amounts attributable to exempted services, including the formula for reversal of CENVAT credit.Binding precedent from the Tribunal's own earlier decision held SSLC and DSC services exempted during the relevant period, requiring adherence under judicial discipline.The Court relied on the harmonious reading of Rule 6(1), (2), and (3), and authoritative decisions including CCE v. Reliance Industries Ltd. and E-connect Solutions Pvt. Ltd., as well as the Madras High Court's ruling in Honda Motor India Pvt. Ltd., which clarified that "total CENVAT credit" in Rule 6(3A) means only the credit on common input services, excluding credit exclusively used for taxable services.The retrospective amendment by Notification No. 13/2016-CE(NT) dated 01-03-2016 and the TRU Circular dated 29-02-2016 were held clarificatory, confirming the interpretation that only common input services credit is subject to reversal, thus avoiding disallowance of credit on inputs exclusively used for taxable services.The penalty was found unjustified because the appellant had acted in good faith by provisionally reversing the credit and informing the department, and the principal issue on reversal was decided in their favor, negating the basis for penalty.The matter was remitted for re-computation of the amount of common credit and the credit to be reversed under Rule 6(3A), ensuring correct mathematical application consistent with the clarified legal position.