TMI Blog2017 (9) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... intained separate accounts in terms of Rule 6(2) which was found to be correct and proper by the original authority. However, the dispute is in respect of certain other common input services they have followed the scheme under Rule 6 (3) - It is clear that Rule 6 (1) is a substantive plenary provision - Hon'ble Supreme Court in CCE Vs Gujarat Narmada Fertilizers Co. Ltd. [2009 (8) TMI 15 - SUPREME COURT] held that sub rule (1) of Rule 6 is plenary. It restates a principle, namely, that cenvat credit of duty paid on inputs used in the manufacture of exempted final product is not allowable. This principle is inbuilt in the very structure of the cenvat scheme. Sub-rule (1), therefore, merely highlights that principle. Sub-rule (1) covers all inputs, including fuel, whereas sub-rule (2) refers to non-fuel inputs. Sub-rule (2) covers a situation where common cenvated inputs are used in or in relation to manufacture of dutiable final product and exempted final product. The mechanism adopted by the appellant for following both sub-rule (2) and sub-rule (3) in respect of different common input services defeats the very restrictions placed under different conditions of sub-rule (3). As s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvocate For the Appellant Shri K. Veerabhadra Reddy, JC (AR) For the Respondent ORDER Per: B. Ravichandran The appeal is against order dt. 30.09.2009 of Commissioner, LTU, Chennai. This order is passed on a remand direction by the Tribunal vide Final Order No.1086/2008 dt. 29.09.2008. 2. The brief facts of the case are that the appellants are registered with the department for discharging service tax under different categories like online information and data base access / retrieval, internet cafe, leased circuit services, franchise service etc. They were also rendering certain services on which service tax is not payable. The appellants were availing cenvat credit of tax paid on various input services used by them, in terms of Cenvat Credit Rules, 2004. The period involved in the present appeal proceedings is 1.4.2005 to 31.3.2008. 3. The appellants availed cenvat credit in the following manner: (a) cenvat credit attributable exclusively to taxable services availed fully (b) cenvat credit attributable exclusively to exempted services were not availed (c) cenvat credit on input services which are common to both taxable service and exempted s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts have satisfied the condition under Rule 6(1). (b) The original authority also held that in respect of input services used for both non-taxable and taxable services they have maintained separate accounts and taken credit only in respect of input services relatable to taxable services. It is recorded that they have fulfilled condition of Rule 6(2) properly in this regard. (c) The original authority also held that the appellants have availed credit on capital goods properly and (d) the input service tax credit in respect of listed services in terms of Rule 6 (5) was found to be properly availed by the appellant. 6. The original authority examined in detail the dispute regarding implication of Rule 6(3), the manner of account and credit availment by the appellant. In order to appreciate the facts as examined by the original authority along with his reasoning, it is necessary to reproduce the relevant portion of the impugned order which is as under : 22. Next, I find that the taxpayer have argued that they are eligible for full credit of those services mentioned under Rule 6(5), which do not require maintenance of separate books of accounts, notwithstanding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable services. They have not availed these common services on apportioned basis also corresponding to the SBUs rendering taxable and non-taxable services. Nor have they separately shown expenses incurred on behalf of the SBU rendering exempted services, by the SBUs rendering common services. In the absence of such bifurcation among the common input services, the eligibility even to the availment of such credit on common input services, does not arise, leave alone, its utilisation within the 20% limit. Further, 20% limit on service tax payable was prescribed only in case where no separate accounts are maintained and all input services are common, which cannot be made applicable to a situation where both separate accounts are maintained and common services are incurred. If credit is given for exclusive taxable services under Rul3 6(2) and also for common services within the 20% limit, the entire credit availed on common input services in the present case, are well within the 20% limit, which would tantamount to allowing full credit of common input s ervices, which is not the intention of the legislature. 25. Further, even if the taxpayer had maintained separate accounts for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Royal Sundaram Alliance Insurance Company, wherein, the Commissioner dropped the demand vide OIO no.LTUC/28/2009-C dt. 3.2.2009 having been satisfied with the separate books of accounts maintained by the assessee similar to them. This case is also not discussed here as the separate books of accounts maintained by the taxpayer in respect of taxable and exempt services have been accepted and credit taken exclusively relating to taxable services allowed. It would be worthwhile to point out here that in the said case, the assessee had taken only proportionate credit of common input services relating to taxable services on the basis of premium from taxable and exempted services and their exempted services were only 0.1% of total services. However, in the present case, the income from taxable and exempt services or their ratio to the total are not known and the taxpayer has not taken proportionate credit relating to taxable services, but taken the entire credit on common input services and utilised the same within the limit of 20% of total taxable output services. The circumstances in the present case are different from that of the case of M/s. Royal Sundaram quoted by the taxpayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Ld. A.R strongly contested the submissions of the appellant. He also submitted a credit chart to illustrate that the action of the appellant with reference to common input service is against the basic priciple of Rule 6. They chose to maintain separate accounts in respect of certain common input services and in respect of other common input services they have not maintained separate accounts and followed provisions of Rule 6 (3). Such type of selective application of Rule 6 (2) and 6 (3) has, in fact, resulted in a situation where they have effectively availed and utilized all the credit on inputs services and have not been put to any restriction though, admittedly, some of the output services were exempt and such services were rendered using taxable input service on which credit has been availed. Such situation is totally against the principles and the mechanism of CCR as provided under Rule 6 as well as Rule 3 of the CCR 2004. By selective application of rule, the appellants have in fact availed and utilized credits on input services used for exempted output services. Such practice is against the basis of CCR 2004. 9. We have heard both the sides and perused appeal record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovider of output service shall utilize credit only to extent of an amount not exceeding twenty per cent of the amount of service tax payable on taxable output service. ... ... ... 10. It is clear that Rule 6(1) is a substantive plenary provision. Hon'bn; Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. 6. (1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in sub-rule (2): Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in manufacture of goods cleared without payment of duty under the provisions of that rule. (2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth sub-rule (2) and (3) of Rule 6 talks about manufacturer or provider of output services . The said sub-rules do not talk about the service wise maintenance of accounts. It is with reference to manufacturer or provider of output service . As already noted, sub-rule (1) absolutely prohibits availing cenvat credit on input service which is used in the manufacture of exempted goods or exempted services except in the circumstances mentioned in sub-rule (2). In other words, it is very clear that plenary provision of sub-rule (1) is giving exception to a situation envisaged in sub-rule (2). Sub-rule (2) is for 'manufacturer' or 'provider of output service' who shall maintain separate accounts for receipt, consumption and inventory of input and input services meant for use in the manufacture of dutiable final products or in providing output service as well as exempted goods. A combined reading of provisions of Rule 6 makes it clear that cenvat credit shall not be allowed for input services used for exempted service except where the manufacturer using common input services, both for exempted as well as taxable output services maintains separate accounts in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account in respect of common input services under sub-rule (2) and, at the same time, follow sub-rule (3) in respect of a few of the common input services so that the bar of 20% utilisation of credit on final tax liability can be avoided. We find the present situation is against the basic principle of CCR. We are of the considered opinion that in respect of common input services for which the appellant is entitled to credit they have an option either to follow sub-rule (2) or sub-rule (3). Following both selectively in respect of selective common input services is against the basic principle and the legal bar under sub-rule (1). Accordingly, we hold that the original authority is correct in disallowing the credit which was availed by the appellant under sub-rule (3). 14. The appellants submitted that there is no provision to deny credit on common input services. While we agree on such legal principle, we note that credit cannot be availed beyond the scope of provision in Rule 6. In the appellant's case credits are availed in terms of provision under sub-rule (2) and sub-rule (3) simultaneously. Hence the question of irregularly availing and disputing the reversal due to lac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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