CESTAT: Reversal of Cenvat Credit for Common Input Services Satisfactory For Compliance under Cenvat Credit Rules, 2004

CESTAT: Reversal of Cenvat Credit for Common Input Services Satisfactory For Compliance under Cenvat Credit Rules, 2004

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has determined that the appellants' reversal of Cenvat credit concerning common input services is satisfactory for adhering to the Cenvat Credit Rules, 2004.

The bench, comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member), noted that the appellants cannot be compelled to opt for payment of the prescribed percentage of the value of exempted services as per Rule 6(3).

The appellants are engaged in providing taxable services, including works contract service, business auxiliary service, maintenance or repair service, mining service, etc. These services were provided under various sub-clauses of Section 65 (105) of the Finance Act, 1994, before July 1, 2012, and subsequently under Section 65B(51) after the introduction of the negative list regime. The appellants were registered with the Service Tax Department and were regularly filing periodic returns. In addition to providing taxable services, the appellants also provide exempted services, such as the construction of public roads, bridges, services by way of accessing roads on payment of toll charges, etc. Additionally, they engage in the trading of goods. The appellants were availing Cenvat credit on inputs, capital goods, and input services under the Cenvat Credit Rules, 2004.

During the audit of the appellants' records, the Department observed that the appellants were availing Cenvat credit for service tax paid on input services. These input services were used by the appellants for both taxable output services and exempted output services. The Department claimed that the appellants did not maintain separate records regarding the receipt and utilization of these common services.

In response to the department's allegations raised during the audit, the appellants provided explanations via letters dated 24.02.2014 and 16.09.2014. They stated that they had not availed Cenvat credit for input services that solely pertained to exempted sites or exempted services. Instead, they only claimed Cenvat credit for input services related to taxable sites or taxable services. The appellants asserted that they maintained separate project-wise accounts and accounted for Cenvat credit related to projects and their headquarters office separately. Regarding input services related to multiple projects, they claimed to have segregated them by apportioning the common input Cenvat credit based on the turnover of the exempted and taxable projects at their headquarters office.

Subsequently, the appellants reversed the portion of Cenvat credit they had availed on common input services, which was attributable to the input services used for providing exempted services. They reversed a total amount of Rs.1,04,52,325/- under protest on various dates and informed the department about the same.

However, the Department did not accept the submissions made by the appellants. Consequently, show cause proceedings were initiated on the grounds that the appellants were not permitted to avail Cenvat credit for input services used in or in relation to the provision of exempted services, as per Rule 6(1) of the Cenvat Credit Rules, 2004.

The assessee argued that they had not availed of any Cenvat credit concerning common services, as alleged in the show cause and adjudication proceedings. They contended that when Cenvat credit is claimed incorrectly and subsequently reversed, it should be legally considered as if no credit was availed of at all.

The department argued that the invoices pertaining to input services for the headquarters office undeniably indicate the consumption of services used for both taxable and exempt services. They asserted that availing Cenvat credit on common input services is unlawful, and the demand made in the orders by the Commissioner is justified.

The tribunal observed that the commissioner had not thoroughly examined the records submitted by the appellants. Instead, the commissioner confirmed the adjudged demands without properly scrutinizing the facts.

The CESTAT nullified the orders issued by the Commissioner, Nagpur, confirming the adjudged demands in the orders dated February 24, 2017 and December 20, 2017 under the Cenvat Credit Rules, 2004.