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August 16, 2010
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Rule 6 of CENVAT Credit Rules, 2004 provides obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.

Rule 6(3)(c) provides that the provider of an output service shall utilize credit only to the extent of an amount not exceeding twenty per cent of the amount of service tax payable on taxable output service.

Rule 6(5) provides that notwithstanding anything contained in sub rule (1) (2) and (3) credit of the whole of service tax paid on taxable services as specified in-

* Sec. 65 (105) (g) - Consulting Engineer;

* Sec. 65 (105) (p) - Architect;

* Sec. 65 (105) (q) - Interior Decorator;

* Sec. 65 (105) (r) - Management or business consultant;

* Sec. 65 (105) (v) - Real Estate Agent;

* Sec. 65 (105) (w) - Security Agency;

* Sec. 65 (105) (za) - Scientist or technocrat or any science or technical Institution or Organization;

* Sec. 65 (105) (zm) - Banking company or Financial Institution including NBFC;               

* Sec. 65 (105) (zp) - omitted with effect from 10.9.2004;

* Sec. 65 (105) (zy) - Insurer including re-insurer;

* Sec. 65 (105) (zzd) - Commissioning or installation agency;

* Sec. 65 (105) (zzg) - Management, maintenance or repair;

* Sec. 65 (105) (zzh) - Technical testing and analysis agency;

* Sec. 65 (105) (zzi) - Technical inspection and certification agency;

* Sec. 65 (105) (zzk) - foreign exchange brokers including authorized dealer;

* Sec. 65 (105) (zzq) - Commercial or individual construction service;

* Sec. 65 (105) (zzr) - Holder of intellectual property rights.

shall be allowed unless such service is used exclusively in or in relation to the manufacture or exempted goods or providing exempted services.

In 'In re: The Bank of Rajasthan Limited' - 2010 (18) STR 136 (Commr. Appl) the appellant has been providing 'banking and other financial services' which includes the taxable and non taxable services and the appellant has not been maintaining separate accounts for consumption of input service meant for taxable as well as non taxable service. The appellant was issued with a show cause notice alleging that the appellant availed 100% CENVAT credit under Rule 6(5) instead of restricting to 20% credit and accordingly the appellant was directed to pay the service tax, interest and penalty holding that Rule 6(5) does not make any exception to the provisions of Rule 6(3)(c) to allow 100% utilization of credit of service tax paid on 'maintenance and repair' services. The appellant filed an appeal before Commissioner (Appeals) and put forth the following arguments:

* The impugned order has grossly erred in holding that Rule 6(5) does not make exception to the provisions of Rule 6(3) of the CENVAT Credit Rules;

* The rule 6(5) starts with a non-obstante clause 'notwithstanding' which would indicate that the provisions of sub rule 6(3) are not applicable for the provisions of sub rule 6(5) of the CENVAT Credit Rules;

* The words 'notwithstanding' means that this particular sub rule takes precedent over anything that might be contradictory.

The Commissioner (Appeals) held that for confirming the service tax, the Assistant Commissioner has come to the conclusion that there is no difference between Rule 6(3) and Rule 6(5) and accordingly he has concluded that the appellant is eligible only to utilize cenvat credit of input services to the extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service. If one goes through the order of Asst. Commissioner, he will find that there is a total confusion. He has not correctly understood the meaning in Rule 6(5) which reads 'notwithstanding anything contained' in sub rules (1) (2) and (3). One can understand that Rule 6(3)(c) and Rule 6(5) remain independent of each other. In other words Rule 6(3) deals with the situation where the service provider who has opted not to maintain separate accounts, can exercise the option. Whereas Rule 6(5) which is altogether different from Rule 6(3) extends 100% credit to the service provider when these services mentioned therein are used for providing output service. The Asst. Commissioner has failed to notice that the credit of whole of service tax paid on taxable services shall be allowed. Therefore his order suffders from the basic defect.

In 'Tidel Park Limited V. Commissioner of Service Tax, Chennai' - 2010 -TMI - 76577 - CESTAT, CHENNAI  the Tribunal held that the assessees are entitled to the whole of the credit of the service tax paid on taxable service as specified in 17 specified categories covered by Rule 6(5) as such service is not used exclusively in or in relation to the providing of exempted services. Rule 6(5) is a non obtante clause and therefore completely widens the restrictions contained in Rule 6(3)(c). It is not the case of the Revenue that the taxable service on which service tax has been paid is not one of 17 categories specified in Rule 6(5) of CENVAT Credit Rules, 2004. The Tribunal set aside the order and allowed the appeal with consequential relief due to the appellants in accordance with law.

In 'Avaya Global Connect Ltd., V. Commissioner of Central Excise, Ahamedabad' - 2010 -TMI - 77387 - (CESTAT, AHMEDABAD) the appellant is engaged in the manufacture of EPABX system and other similar goods and they also provide services of erection, commissioning and installation, maintenance and repairs, commercial training and coaching, consulting engineer, scientific and technical consultancy service. Service tax was demanded and confirmed against the appellant on the ground that the appellants had availed CENVAT credit in respect of services which are used in respect of services provided in Jammu and Kashmir state and SEZ which were exempted during which were exempted during the relevant time and while paying the service tax they were required to utilize only 20% of the credit available for payment of service tax on the input service in accordance with the provisions of Rule 6(3)(c) of CENVAT Credit Rules,2004. The appellants submitted that Rule 6(3)(c) is not applicable since they had not at all taken the credit in respect of ten common services which were utilized by them. Once they have not taken credit on common services, the question of maintenance of separate records does not arise. The Commissioner (Appeals)'s observation that the calculation has to be made in respect of each service is not correct. The services provided to the SEZs are not at all exempted and cannot be treated as an exempted service. In respect of J&K it was not the appellants who provide the service but only sub contractors.

The Tribunal found that even though the appellants submitted a list of ten services and the credit available thereon which was not taken, no verification has been conducted to check whether the claim made by the appellant that they have not taken CENVAT credit in respect of the common services and therefore they would not be required to maintain separate accounts is correct. The Tribunal held that there is a need for verification of the claim made by the appellants that they have not taken credit of service tax paid on all the common input services and their number is only ten. The Tribunal preferred to leave all the issues open during the fresh adjudication by the Commissioner.


By: Mr. M. GOVINDARAJAN - August 16, 2010



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