ST - Rule 6(3A) only contemplates procedure and does not mandate that on failure to comply, assessee loses choice of reversing proportionate credit: CESTAT
By TIOL News Service
MUMBAI, OCT 31, 2017: THE Appellants were providing taxable service (risk premium), Non-taxable Service (investment management services provided under ULIP for the period 2010-11) and exempted service (Traditional Golden Year Plan) and availed CENVAT credit.
They were served with a demand notice requiring them to pay the amount/reverse cenvat credit as prescribed under rule 6(3) of CCR, 2004 on the exempted service/non-taxable service.
The adjudicating authority confirmed the demand and imposed penalties.
In appeal before the CESTAT, the appellant refuted the allegations by taking the support of a plethora of case laws.
The AR supported the impugned order and also relied on various case laws.
The Bench, after considering the elaborate submissions, inter alia observed -
Merits:
+ We are of the view that in terms of explanation to Rule 2(e) of CCR, 2004 the services on which no service tax is payable is to be considered as "exempted service" and the credit of input or input services is not available to the service provider. The Traditional golden plan which does not have any risk cover and thus being not liable to tax falls under the category of "exempted service" at the relevant time.
+ The Appellant at the relevant time on the basis of interpretation of the provisions of the Finance Act and Cenvat Credit Rules, 2004 considered their service as not exempted and availed cenvat of input service which were commonly used. The Appellant though litigating the show cause notice and demand on merit had also prayed for reversal of credit instead of demand of 6% value of the exempted goods contending that the substantial benefit of reversing the credit should not be denied to them.
+ In our considered view the assessee cannot be forced to pay 6% of the value of exempted goods in case where they have availed the credit of input services used in exempted output services .
+ Rule 6(3A) of CC Rules, 2004 only contemplates procedure for application of Rule 6(3) and does not mandate that on failure to intimate in writing for availing option the manufacturer or the service provider shall lose their choice to avail option under Rule 6(3)(ii) for reversing proportionate credit. The procedure given therein and the conditions in said Rule 6(3A) is intended to make Rule 6(3) workable. It nowhere mandates to take away options exercisable available to the assessee.
+ Rule 6(3)(i) cannot be made automatically applicable on failure to intimate in writing about option to be availed by the assessee. The assessee has the option either to reverse the proportionate credit pertaining to such exempted service or to pay 6%. [Max New York Life Insurance Company Ltd - 2017-TIOL-2385-CESTAT-DeL, TATA AIG Life Insurance Company Ltd. - 2014-TIOL-487-CESTAT-MUM relied upon]
Limitation & Penalty:
+ The Adjudicating authority held that the Appellant did not declare the value of exempted service in their ST-3 returns and having been failed to do so, said to have suppressed facts from the department.
+ We find that apart from the non-declaration of exempted service or the credit pertaining to input services used therein, no other facts has been brought to the fore which can show that behind such alleged non declaration or availment of Cenvat Credit there was an intention to evade. The facts of such credit availment were recorded in books of accounts and the same was also presented before audit.
+ Based upon interpretation of the provisions of the Finance Act, 1994 and CC Rules, 2004 they bonafidely believed that they are entitled for the credit.
+ In such these facts, we are of the view that the availment of cenvat credit cannot be held to be with the malafide intention as none of the ingredients of malafide intention or any contumacious conduct on the part of the Appellant has been brought forward in show cause notice.
+ The period involved is May' 2010 to January' 2011 for which show cause notice was issued on 3.8.2012 i.e. after one year. Therefore, the entire demand is set aside being time barred.
+ Since we have held that there is no suppression of fact or intention to avail any illegal credit, we, … set aside the penalty imposed against the Appellant.
The Appeal was allowed.
(See 2017-TIOL-3839-CESTAT-MUM)
