By TIOL News Service

MUMBAI, JUNE 30, 2015: DURING the course of audit it was noticed that the appellant was availing abatement of 67% of the value of taxable service under Notification No. 15/2004-ST, subject to the condition that no CENVAT credit of duty paid on inputs or capital goods shall be availed by the service provider during the period.

Notification No. 15/2004 was rescinded on 1/3/06 by Notification No. 2/06-ST. In its place came Notification 1/2006-ST dated 01.03.2006 wherein similar abatement was extended but it was also mandated that the non-availment of CENVAT credit also applies in respect of Input Services.

A Show-cause notice dated 28.12.2010 was issued alleging that the appellant could have availed credit of CENVAT for service tax paid on inputs services availed during the period prior to 01.04.2006 but they chose not to do . Instead the appellant had availed the credit on 01.04.2006 that is one month after the Notification dated 1.3.06. According to Revenue, once the notification is rescinded, there can be no legality and legitimacy in availing the benefits allowed by the same. Accordingly, the total credit of Rs. 11,06,479/- availed was sought to be disallowed along with interest and imposition of penalty.

As the lower authorities upheld the demand along with penalty and interest, the appellant is before the CESTAT and submits -

+ Denial of credit is against the provisions of the Finance Act read with CENVAT Credit Rules, read with the Notification. Admittedly, the appellant was availing the benefit of Notification No. 15/2004 under which it was entitled to CENVAT Credit on input services received. Only in view of Rule 4 sub Rule 7 of CENAT Credit Rules, 2004 which provided that CENVAT credit is to be taken on or after the date of payment, the appellant have taken credit accordingly on 01.04.2006, which cannot be denied.

+ That the purpose of Notification No. 1/06-ST is that CENVAT Credit on inputs and input services shall not be availed on services received on or after 01.03.2006 .

+ Taking of credit and its utilisation is a substantive right of taxpayer under the value-added taxation scheme. Therefore, in the absence of a clear legal prohibition, this credit cannot be denied. CBEC Circular No. 137/72/2008-CX dated 21.11.2008 issued in the context of rule 6 of CCR, 2004 is also relied upon along with the Bombay High Court decision in Tata Engineering and Locomotive Company Ltd. - 2004-TIOL-06-HC-MUM-CX.

The AR reiterated the order of the lower authority and submitted that Notification is issued under the specific Section of the Act and hence will override provision of Rule 3 of CCR.

The Bench observed -

"…I hold that the appellant have rightly taken credit for the input services received and availed admittedly prior to 01.03.2006 although credit for the same have been taken on 01.04.2006, subsequent to coming into force of Notification No.1/06, following the ruling of the Hon'ble High Court of Bombay in the case of Tata Engineering & Locomotive Company Ltd. (supra). The intention of the Government is also express, that it is not to disallow the CENVAT Credit for the previous period as there is no such specific bar in the subsequent Notification no. 1/2006. This view is further fortified by the view taken by CBEC Circular with respect to brought forward CENVAT Credit under Rule 6 sub Rule 3 when the disability of utilisation of 20% was removed."

The order was set aside and the appeal was allowed with consequential benefits.

(See 2015-TIOL-1278-CESTAT-MUM)