TMI Blog2018 (10) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a service as defined in section 65B(44) of the Finance Act, 1994 provided that such activity has used inputs or input services. That there was no such stipulation prior to 1.4.16 in law and prima facie such situation was not to be treated as exempt service and did not attract the mischief created under Rule 6 of the CCR, 04 - However, for the period prior to 1.4.16, does this mean that a service provider can take and retain full credit on input services received even after receipt of Completion Certificate? In our considered view, the situation will be governed by Rule 3 of the CCR, 04 till such time, i.e. till the time Rule 6 was specifically made applicable by virtue of the deeming fiction created. It is trite law and in terms of Rule 3 of the CCR, 04, Cenvat Credit of Service Tax paid on input services used to provide output service, is eligible. In light of the provisions of Rule 3 of the CCR, 04, the Appellant cannot avail full Cenvat Credit on input services received after obtaining completion certificate, however, the Appellants cannot be expected to pay an amount equal to 8% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rotest cannot be retained by the revenue authorities and have to be returned to the Appellants. Appeal allowed - decided in favor of appellant. - ST/11475,11476,10017,10018/2018-DB - Final Order No. A /12229-12232/2018 - Dated:- 23-10-2018 - MR. RAMESH NAIR, MEMBER (JUDICIAL) AND MR. RAJU, MEMBER (TECHNICAL) For Appellant: Shri. S.R. Dixit (Adv.) For Respondent: Shri. J. Nagori (A.R.) ORDER Per: Ramesh Nair These appeals have been filed by M/s. Alembic Ltd. and M/s. Shreno Ltd. The details of the period, issue and amount involved in these appeals are as follows: M/s. Alembic Ltd. Sr. No. Appeal No. Cenvat Credit Amount Refund Amount Period Involved SCN date Remarks 1 ST/10018/2018 NA Rs.1,17,68,904/- 2010-11 to 2014-15 21.9.16 Refund issue 2 ST/11475/2018 Rs.6,37,39,636/- NA 24.7.14 to 31.12.16 2.11.17 Demand und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tificate, at which time their output service activity was wholly taxable, on the ground that after receipt of completion certificate, the property had become immovable property and in case of future sale thereof, no service tax would have been payable and credit in proportion to area which did not attract Service Tax compared to the entire property area. These amounts were paid by the Appellants under protest at the insistence of CERA auditors. 1.5 That while such amounts were paid under protest and no SCN was issued by revenue authorities in this regard, the Appellants had sought refund thereof. Subsequent thereto, the revenue authorities issued separate SCNs, demanding 6%/8%/10% amount of sale of immovable property after obtaining Completion certificate where no Service Tax was paid by the Appellant, on the ground that they had availed Cenvat Credit and provided taxable as well as exempt services (sale of immovable property), and they had not maintained separate accounts. The amounts paid under protest for input services received during the period 2010 till obtaining completion certificate, viz. ₹ 1,17,68,904/-(in case of M/s. Alembic) and ₹ 65,30,867/-(in case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and they had also not availed proportionate credit in respect of input services pertaining to the percentage of property converted into immovable property after receipt of completion certificate, on basis of the square foot area. The Appellants have also relied upon two separate CA Certificates dated 03.07.18 as well as letter dated 26.04.18 issued by both the Appellants to the Revenue Authorities, intimating the fact of proportionate availment of Cenvat credit in the above manner. The said certificates are also supported with detailed certified workings and calculations, alongwith invoices on sample basis, which shows that while a higher service tax was actually paid on input services, the Appellants had availed only proportionate credit based on the percentage of immovable property which had suffered service tax levy in the manner stated hereinabove. 2.3 The learned advocate took us through the provisions of Cenvat Credit Rules more particularly Rule 2(e) of the said rules which defines the term exempt service as also the definition of the term service itself as defined under Section 65B(44) of the Finance Act, 1994. It is the case of the Appellants that in case of sale of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is received. Rule 6 of the Cenvat Credit Rules, 2004 deals with only the prospective liability i.e. the credits availed on and after the output activity becoming exempt and not to services which were availed at the time when the output service was wholly taxable in the hand of the Appellants. It was further argued that Rule 11 of the Cenvat Credit Rules, 2004 is the only provision under which the credit availed in the past can be called into question and as explained by TRU vide its clarification no. 334/1/2007-TRU dated 28.02.2007 and as taken note of by Hon'ble Madras High Court in the case of TAFE 2015(320) E.L.T. 357(Mad) as further upheld by the Hon'ble apex court as reported at 2015 (324) E.L.T. A86(SC), the provisions of Rule 11 of the Cenvat credit rules, do not require any reversal of credit in respect of input services unlike the mischief created for inputs contained in stock or contained in semi-finished state as on the date when the output service becomes exempt. 2.6 The Appellants heavily relied upon various decisions of the Hon'ble Tribunal as also various high courts as well as Hon'ble supreme court of India, in support of the claim that once cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid decision is applicable to the present case. 2.9 As regards the refund issue, it was argued that in the eventuality the main demand itself does not survive, the refund will ipso facto become applicable. It was argued by the Appellants that even otherwise, since no show cause notice is issued for the period from 2010-2011 to 2014-2015 at all qua such proportionate reversal made by the Appellant, seeking to appropriate the amounts paid under protest, the Revenue Authorities have no right to retain the same and it has to be duly returned/refunded to the Appellants forthwith. The Appellants relied upon various case laws in support of this contention. 3. That on the other hand, Shri J. Nagori, the AR on behalf of the Revenue reiterated the findings of the impugned orders passed by the Lower Authorities. He further submitted that the proportionate credit required to be reversed in respect of non-taxable transaction will necessarily include the whole of credit availed by the Appellants right from the inception of the project and cannot be taken to be limited only to the credits availed after receiving the completion certificate. He further argued that the Appellants did not follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R, 04? d. Whether the Appellants are required to reverse Cenvat Credit availed during the period when output service was taxable before receipt of Completion Certificate, since such services were availed to construct entire property, and portion of such property did not attract Service Tax after receipt of Completion Certificate? e. Connected to the question (d), whether the Appellants are eligible to seek refund of the amount paid under protest towards Credit availed from 2010 till receipt of completion certificate, based on CERA audit objection wherein such credit was sought to be reversed based on considering square foot area where Service Tax was paid and balance area where Service Tax will not be paid after Completion Certificate. 6. We find some merit in the submission made by the Ld. Counsel for the Appellants that for the purpose of invoking provisions of Rule 6 of the Cenvat Credit Rules, 2004, in the present set of facts and circumstances, the output service must first be exempt service. That upon receipt of Completion Certificate for the projects, the output activity of sale of residential units becomes non-service as per provisions of Section 65B of the Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full Cenvat Credit on input services received after obtaining completion certificate, however, the Appellants cannot be expected to pay an amount equal to 8%/10% of sale price of immovable property after obtaining such Completion Certificate where no Service Tax is paid as if it is sale of immovable property since Rule 6 of the CCR, 04 per se does not apply to the present case until 1.4.16 at all. Even after 1.4.16, since the Appellants had availed only proportionate credit, we are of the view that they are not legally required to pay 8%/10% amount under Rule 6(3) of the CCR, 04 since they can be said to have maintained separate accounts as required under Rule 6(2) of the CCR, 04. 10. The Appellants have rightly relied upon the decision in the case of Foods, Fats and Fertilisers (supra) wherein it was held as follows: The main allegation is that they did not maintain separate accounts for receipt, consumption and inventory of the inputs as prescribed in the Cenvat Credit Rules, 2002/2004. It is seen that the Appellants had not taken entire credit on the duty paid on the inputs used in dutiable and exempted products. It is on record that they had availed credit on pro-rata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts should be stored separately. In these circumstances the demand of 8%/10% of the value of the exempted products is not at all justified. Further on going through the records, we find that the Appellants had kept the Department informed of the practice adopted by them . Therefore there is no justification for invocation of longer period and imposition of mandatory penalty. 11. We accordingly of the view that having taken only proportionate Credit on input services after receipt of Completion certificate, duly backed by CA certificate and certified work sheets for the proportionate credits availed after Completion Certificate and also demonstrated on sample basis during the course of hearing, the Appellants have fulfilled its obligation under Rule 3 of the CCR, 04 read with Rule 6 thereof and as such, they are not liable to pay any amount equal to 8%/10% of the sale price of immovable property after receipt of completion certificate under Rule 6 of the CCR, 04 as confirmed by the Adjudicating Commissioner against them. 12. As regards to the next issue of whether the Appellants were also required to reverse proportionate credit, out of the valid input service credits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such ratio laid down by higher courts. 15. In fact, in order to overcome such legal position, transitional provisions were introduced in the Modvat/Cenvat Credit Rules. That Rule 11 of the Cenvat Credit Rules, 2004 as it existed during the material period, provides that where any inputs are contained in semi-finished or finished goods form, as on date when the finished goods becomes exempt or output services become exempt, such credit will have to be reversed. As clarified vide TRU clarification No.334/1/2007-TRU dt.28.2.07 and also taken note of by Hon ble Madras High Court in the case of TAFE 2015(320) ELT 357(Mad) and eventually upheld by Hon ble Apex Court 2015(324) ELT A86(SC), such embargo applies only to inputs and not to input services at all. Admittedly, in the present case, the dispute is limited to credits availed on input services during a time when output service was wholly taxable however, portion thereof became non-taxable on account of receipt of Completion Certificate later on. 16. This being the case, a harmonious reading of Rule 3 of the CCR, 04 read with Rule 6 and Rule 11 of the said Rules will suggest that eligibility / entitlement to credit has to be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the invoice, bill, or as the case may be challan, the manufacturer of the service provider who has taken credit on such input service, shall pay an amount equal to the cenvat credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these Rules: Provided also that if any payment of part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so refunded or credited: CENVAT credit in respect of invoice, bill or as the case may be, challan referred to in rule 9 issued before the first day of April 2011 shall be allowed, on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in Rule 9. Explanation I The amount mentioned in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter stage, unlike the provision for manufactured goods provided under Rule 11(1)(2) and (3), there is no such provision in respect of the service. The only provision for the service is provided under Sub-Rule (4) of Rule 11 which reads as under: 11(4) A person provider of output service shall be required to pay an amount equivalent to the CENVAT credit, if any, taken by him in respect of inputs received for providing the said service and is lying in stock or is contained in the taxable service pending to be provided, when he opts for exemption from payment of whole of the service tax leviable on such taxable service under a notification issued under section 93 of the Finance Act, 1994 (32 of 1994) and after directing the said amount from the balance of CENVAT credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any excisable goods, whether cleared for home consumption or for export or for payment of service tax on any other output service, whether provided in India or exported. From the above sub rule (4), it can be seen that even if an output service provider avail the credit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is to regularise not only credits availed after Completion Certificate but also availed during 2010 till the time Completion Certificate was obtained. In that sense, Rule 6 if invoked, can deal with only prospective credits availed after output activity becoming exempt and not credits availed before the output activity become exempt. 22. As submitted by the Appellants, even CERA authorities, while raising objection and making the Appellants reverse Cenvat Credit availed during 2010 till obtaining of Completion Certificate, adopted the same basis of square feet area which attracted Service Tax as compared to square feet area which was converted into immovable property after receipt of Completion certificate. This basis is therefore, it appears is otherwise acceptable to revenue authorities. It was such basis which was adopted by the Appellants in availing only proportionate Credit after receipt of Completion Certificate. 23. Since we hold that the Appellants are not required to reverse any credit availed by them on valid input services availed during the period 2010 till obtaining of Completion certificate, the said amounts reversed by them under protest cannot be retained ..... X X X X Extracts X X X X X X X X Extracts X X X X
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