CENVAT Credit Rules | Variable 'P' Under Rule 6(3A) Refers Only To Common Credit, Not Total Credit, Prior To 01.04.2016: CESTAT

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that variable 'P' under Rule 6(3A) of CENVAT Credit Rules, 2004, refers only to common credit, not total credit, prior to 01.04.2016. P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) were addressing the issue of whether, for the tax periods April 2012 to March 2014, the variable “P” in Rule 6(3A) of the CENVAT Credit Rules, 2004 would denote total credit or common credit. Rule 6(1) of the CENVAT Credit Rules, 2004 provides that credit shall not be allowable in respect of input services used in or in relation to the manufacture of exempted goods or for the provision of exempted services. It further provides that the credit so not allowed shall be calculated and paid by the Assessee in terms of sub-rules (2) or (3) of Rule 6. Sub-rule (3) deals with cases where, in the case of a manufacturer, both exempted and non-exempted goods are manufactured, and in the case of a service provider, both exempted and non-exempted services are rendered. These persons have the option either to pay an amount equal to 6% of the value of exempted goods or 7% of the value of exempted services, subject to a maximum of the total credit available, or to pay an amount determined in accordance with sub-rule (3A). The assessee/appellant avails various taxable services and avails CENVAT credit of Service Tax paid on various input services under the CENVAT Credit Rules, 2004. The assessee also trades in certain goods. The assessee therefore renders both taxable and exempt services and avails CENVAT credit in respect of some input services which are commonly used for rendering both taxable and exempted services. In this respect, it is common ground that the assessee would have to comply with the provisions of Rule 6 of the aforesaid rules. The show cause notices were issued alleging that the assessee's claim that it was following the procedure prescribed by sub-rule (2) was not correct, and that the assessee was liable to pay amounts only as per sub-rule (3A). The assessee responded that it was never its case that sub-rule (2) applied and that it was only following sub-rule (3A). The Adjudicating Authority found that the assessee had opted for the method prescribed in Rule 6(3)(ii), i.e., computing and paying an amount in the manner prescribed by Rule 6(3A). He then observed that sub-rule (3A) contemplates three factors. The third of these factors, he notes, is “P” which is the total CENVAT credit taken on input services. He holds that “P” ought to be the total credit and not only common credit for periods prior to 01.04.2016. The Adjudicating Authority has thus substituted total credit for common credit in the variable “P” and concluded that excess amounts of credit ought to have been reversed and paid. Demands have, consequently, been raised. The bench noted that Rule 6(3A) was amended with effect from 01.04.2016 by Notification No. 13/2016-C.E. dated 01.03.2016. The Tribunal noted that three kinds of credit are contemplated. The first is eligible credit, which is attributable exclusively to the manufacturer of taxable goods or rendition of taxable services, which is denoted as “A”. The second is ineligible credit, which is attributable exclusively to exempted goods or exempted services. This is denoted as “B”. The Rule also contemplates a third category which is not exclusively attributable either to taxable or exempted goods manufactured of services rendered. This third category is termed common credit, denoted by the letter “C”, observed the bench. The Tribunal noted that until 31.03.2016, the variable “P” denoted total CENVAT credit………the concept of common credit finds mentioned for the first time only with effect from 01.04.2016. The bench held that the variable “P” for the tax periods under consideration would denote only common credit which arises from inputs/ input services used both for exempted and non-exempted goods/services. 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 Nos. 41366 & 41367 of 2016 Counsel for Appellant/ Assessee: Natasha Jhaner, Chartered Accountant Counsel for Respondent/ Department: Rajni Menon Click Here To Read/Download The Order

CENVAT Credit Rules | Variable 'P' Under Rule 6(3A) Refers Only To Common Credit, Not Total Credit, Prior To 01.04.2016: CESTAT

Mehak Dhiman

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