CENVAT Credit Rules | Only Common Input Service To Be Considered For Calculating Credit For Reversal Under Rule 6(3A): CESTAT Chennai

Rule 6(3A) of the CENVAT Credit Rules, 2004, provides the specific procedure and formula for determining the amount of CENVAT credit that must be reversed when a manufacturer or service provider uses common inputs or input services for both taxable and exempted outputs but does not maintain separate accounts.

P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) examined whether cenvat credit of input services exclusively used for a dutiable product should be taken or the total cenvat credit of only common input service should be taken for the purpose of calculating the cenvat credit for reversal in terms of Rule 6(3A) of Cenvat Credit Rules, 2004.

In the case at hand, the assessee/appellant was engaged in providing services such as online information and database access/retrieval, internet café, leased circuit, franchise, business auxiliary services, advertisement services, etc.

Earlier, prior to March 2008, they were availing and utilising Cenvat credit used in providing both taxable and exempted services, but not restricted the utilisation to 20% of the amount of service tax payable on the taxable output services, in terms of Rule 6(3) of Cenvat credit Rules, 2004.

Initially, a show cause notice was issued proposing to disallow the entire credit for wrong availment of credit taken on the common input services along with interest and penalty under Rule 15(3) of CCR 2004.

The adjudicating authority confirmed the demand made in the show cause notice. The assessee filed an appeal before the Tribunal. The Tribunal remanded the matter to the Adjudicating Authority for verification of the allocation of credit of common input services to departments rendering taxable services, and those rendering exempted services.

In the remand proceedings, the Original Authority confirmed the demand of Rs.13,36,742/- under Rule 14 of CCR 2004 read with Section 73 (1) of the Finance Act, 1994.

The department opined that the assessee, having adopted reversal of credit of input services pertaining to the exempted services, was bound to reverse the credit of output services as per the formula prescribed under Rule 6(3A).

The assessee submitted that if the computation method adopted is confirmed in the impugned order, wherein to consider the entire input service credit is accepted, the same would lead to a situation where even when the cenvat credit exclusively attributable to the provision of taxable services would require to be reversed which is not the spirit of Rule 6(3) (ii) of CCR.

It is the case of the assessee that the credit to be reversed is the credit attributable to the provision of exempted services alone, and only the common credit taken should be considered for arriving at the amount to be reversed under the provision to the exempted turnover under Rule 6 (3A) ibid.

The bench referred to Rule 6 (3) (ii) of CCR 2004 and observed that the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedures laid down in sub-rule (3A).

The bench held that the purpose of calculation of credit reversal, in the formula, total Cenvat credit shall mean credit of only common input services and not of input services exclusively used for the manufacture of dutiable product on which the Cenvat credit is eligible in its entirety.

In view of the above, the Tribunal allowed the appeal.

Case Title: M/s. Sify Technologies Ltd. v. Commissioner of GST & Central Excise

Case Number: Service Tax Appeal No.41180 of 2016

Counsel for Appellant/ Assessee: Kiran Manokaran

Counsel for Respondent/ Department: Anandalakshmi Ganeshram

Click Here To Read/Download Order