Reversal Of Cenvat Credit In Respect Of Common Input Services Sufficient For Compliance With Cenvat Credit Rules, 2004: CESTAT

The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that reversal of Cenvat credit in respect of common input services by the appellants is sufficient for compliance with the Cenvat Credit Rules, 2004.

The bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) has observed that the appellants cannot be forced to avail of the option of payment of the prescribed percentage of the value of exempted services in terms of Rule 6(3).

The appellants/assessee are in the business of providing taxable services such as works contract service, business auxiliary service, maintenance or repair service, mining service, etc. under various sub-clauses of Section 65 (105) of the Finance Act, 1994 (for the period prior to July 1, 2012) and under Section 65B(51), subsequent to the introduction of the negative list regime, for which they were registered with the Service Tax Department and were filing periodical returns. Apart from providing the taxable services, the appellants are also providing exempted services such as the construction of public roads, bridges, services by way of access to roads on payment of toll charges, etc., and trading of goods. The appellants were availing of Cenvat credit on inputs, capital goods, and input services under the Cenvat Credit Rules, 2004.

During the course of the audit of the records of the appellants, it was observed by the Department that the appellants were availing of Cenvat credit for service tax paid on input services that were used by them for the provision of taxable output services as well as exempted output services, and it was claimed by the Department that no separate records regarding receipt and utilization of these common services were maintained by the appellants.

The appellants had responded to the allegations of the Department raised in the audit, stating that no Cenvat credit has been taken by them for input services that wholly pertain to exempted sites or exempted services, and they had taken Cenvat credit on input services that pertain to taxable sites or taxable services. They maintain separate project-wise accounts and account for the Cenvat credit related to projects and their headquarters office (HO) separately. In respect of input services related to multiple projects, they have segregated the same by apportioning the common input Cenvat credit based on the turnover of the exempted and taxable projects at their HO. The appellants had subsequently reversed that portion of Cenvat credit availed by them on the common input services, which was attributable to the common input services used for providing exempted services, for a total amount of Rs. 1,04,52,325 under protest on various dates and informed the Department of the same.

However, the Department did not accept these submissions from the appellants. A show cause proceeding was initiated on the ground that the appellants were not allowed to take Cenvat credit on such quantities of input services that are used in or in relation to the provision of exempted services under Rule 6(1) of the Cenvat Credit Rules, 2004.

The assessee contended that the appellants had not availed any Cenvat credit whatsoever in respect of common services, as alleged in the show cause and the adjudication proceedings. In a situation where the Cenvat credit is alleged to have been wrongly availed, when reversed, it is in law to be considered as if no credit is availed.

The department contended that the invoices with respect to input services in respect of HO definitely relate to consumption of services, which are used both for the provision of taxable services as well as exempt services. The availment of Cenvat credit on common input services is illegal, and it has been correctly demanded in the orders by the Commissioner.

The tribunal noted that the Commissioner had not gone into the details of records submitted by the appellants and had confirmed the adjudged demands without proper examination of the facts.

The CESTAT quashed the orders passed by the Commissioner, Nagpur, in confirmation of the adjudged demands in the orders dated February 24, 2017 and December 20, 2017 in terms of the Cenvat Credit Rules, 2004.

Counsel For Appellant: Rohan Shah

Counsel For Respondent: Piyush Badhe Barasu

Case Title: M/s SMS Ltd. Versus Commissioner of Central Excise & Service Tax

Case No.: Service Tax Appeal No. 86550 of 2017

Click Here To Read The Order