By TIOL News Service

MUMBAI, MAY 14, 2013: THE appellants are registered with the department under the category of "Consulting Engineers Service". During the course of audit of the records of the appellant, it was observed that the appellant was providing both taxable and exempted service and was not maintaining separate accounts for the CENVAT credit availed. Accordingly, the department was of the view that the appellant was liable to pay an amount equivalent to 8% (6% with effect from July 2009) of the value of the exempted service in respect of such services provided during April 2008 to September 2009.

Accordingly, a demand notice of Rs.1.69 crores found its way to the office of the consulting engineer and the adjudicating authority did the rest.

The appellant is before the CESTAT and submits that following were the submissions made before the Commissioner of Service Tax, Mumbai and which he ignored -

+ they had rendered the said exempted service to units in SEZ which was deemed as exports and the service provided to SEZ have been excluded from the scope of the Rule 6 of the CENVAT Credit Rules, 2004 vide Notification NO. 3/2001-CE (NT) dated 01/03/2011. The said notification was given retrospective effect vide Section 144 of the Finance Act, 2012 with effect from 10/02/2006 to 28/02/2011. Therefore, in terms of the amended Rule 6 they are not required to reverse any CENVAT Credit in respect of inputs and input services availed in rendering of the output services rendered to SEZ.

+ Reliance is also placed on the following case laws -

a) Repro India Ltd., Vs. UOI, - (2007-TIOL-795-HC-MUM-CX)

b) CCE Chandigarh Vs. Drish Shoes Ltd., - (2008-TIOL-2203-CESTAT-DEL)

c) Reliance Industries Ltd., Vs. CCE, - (2002-TIOL-131-CESTAT-MUM)

d) Punjab Stainless Steel Industries Vs. CCE, - (2008-TIOL-2696-CESTAT-DEL)

e) CCE Vs. Global Pharmatech Pvt. Ltd., - (2011-TIOL-524-CESTAT-MAD)

The Revenue representative reiterated the findings of the adjudicating authority.

The Bench observed -

"6. There is no dispute in this case that during the period April 2008 to March 2010, the appellant had rendered services to SEZ unit/SEZ Developers and had also taken CENVAT credit on the inputs/input services used in the provisions of output services. These details of such services rendered to SEZ units/developers were reflected in the half yearly ST-3 returns filed by the appellants. Vide Notification No.3/2011 dated 01/03/2011, the CENVAT Credit Rules, 2004, were amended so as to provide that there is no need to reverse any CENVAT credit taken on inputs/input services if such inputs/input services were used in rendering of output services to SEZ unit/SEZ developer. Further, vide Section 144 of the Finance Act, 2012 the said amendment was given retrospective effect from 10/02/2006 to 20/02/2011. In other words, during the impugned period, there was no need for the assessee to reverse any credit taken on the inputs/input services in respect of which credit was availed for rendering of output services to SEZ units/SEZ developer. The adjudicating authority has completely failed to examine the claim of the appellant, the details of which were provided to him at the time of adjudication. Therefore, we hold that the impugned order is not sustainable in law.

6.1 Further, the Hon'ble High Court of Bombay, in the case of Repro India Ltd., reported in - (2007-TIOL-795-HC-MUM-CX) held that the provisions of Rule 6 (3) (b) of the CENVAT Credit Rules are not attracted in the case of exports as Rule 6 (6) (v) provides an exception in the case of clearances for export. As per Section 2 (m) of Special Economic Zones Act, 2005, supplying goods, or providing services, from a unit in DTA to an SEZ unit or SEZ developer is deemed as "export" and vide Section 50 of the said Act, the provisions of SEZ Act shall prevail over the provisions of other enactments. Thus supplies made to SEZ or SEZ developer amounts to "export". Viewed from this perspective also, the appellants are rightly entitled to CENVAT credit on the inputs and input services used in or in relation to rendering of output services to a unit in SEZ or to a SEZ developer."

In fine, the order passed by the Commissioner of Service Tax, Mumbai was set aside and the appeal was allowed with consequential relief.

Harassment: Extract from the Explanatory note issued under D. O. F. No 334/1/2012-TRU Dated: March 16, 2012 by Jt. Secretary (TRU) -

"C.4. Retrospective changes

19. Rule 6(6A) of the Cenvat Credit rules, introduced last year vide Notification 3/2011-CE (NT), dated 01/03/2011, is being given effect from February 10, 2006. This will neutralize the investigations or demands for reversal of credits in respect of services provided to SEZs for the past."

The order passed by the Commissioner of Service Tax, Mumbai is dated 11th July, 2012. If in spite of clear instructions given by the TRU, the demands are routinely confirmed and the Committee too approves such a stand, it is high time the Board apprises all concerned.

(See 2013-TIOL-727-CESTAT-MUM)