By TIOL News Service

MUMBAI, APRIL 14, 2017: THE appellant is a registered service provider and avails CENVAT credit on a number of input services.

Recovery was ordered on the ground that appellant, while providing ‘broadcasting service' with effect from the 1st July 2001 had failed to maintain separate records for taxable and exempted services even though the services provided in the State of Jammu and Kashmir were not subject to service tax owing to exclusion of that territory from the ambit of Finance Act, 1994.

It is the contention of the Revenue that in the above circumstances, the appellant was permitted to discharge only 20% of the taxability by recourse to CENVAT credit for the period from 2006-07 to 2007-08 and the excess credit utilisedwas sought to be recovered.

Accordingly, an o-in-o was passed by the Commissioner of Service Tax denying the credit of Rs.6.22crores and imposing penalty and interest.

In appeal before the CESTAT, while admitting that tax liability does not arise in relation to services rendered in the State of Jammu and Kashmir, it is contended that tax that was not leviable cannot be subject to circumscribing provisions of the tax laws and, even if it does, should not impinge upon the benefits of legislation flowing to assessees. It is their contention that restrictive provisions of rule 6(3) does not arise in relation to availment of credit pertaining to services rendered in the State of Jammu and Kashmir and is not an exempted service. It is also claimed that the demand is hit by bar of limitation.

The appellant sought support from the following -

++ Circular no. 36/4/2001-ST dated 8th October 2001

++ ECIL Rapiscan Ltd 2009-TIOL-1605-CESTAT-BANG

++ ECIL Rapiscan Ltd. 2013 -TIOL-1976-CESTAT-BANG

++ Kanungo Industries 2002-TIOL-252-SC-CUS-CB

The AR justifies the demand and places reliance on the decision in Prathyusha Associates Shipping (P) Ltd. 2014-TIOL-1619-CESTAT-BANG and Mercedes-Benz India Pvt. Ltd. - 2016-TIOL-105-HC-MUM-CX.

The Bench considered the submissions and inter alia observed thus -

+ In order that administrative complications did not hinder this objective (of avoiding cascading effect), the rules provide that where separate sets of accounts are not maintained, tax liability of up to 20% alone can be discharged by recourse to accumulated CENVAT credit. That the appellant has not restricted the utilization of CENVAT credit to the stipulated limit is not in dispute; neither is it in dispute that appellant has been providing services throughout India including the State of Jammu & Kashmir, that inputs/input services have been made use of for rendering service without distinction of the territory in which the service is rendered and that separate accounts inputs/input services are not maintained.

+ As the Finance Act, 1994 does not extend to State of Jammu and Kashmir, output services provided there are not subject to tax. However, in the matter of rendering such service, it is moot whether the provisions of services to the excluded territory required additional use of input/input services. Nor is it the case of the tax authorities that the scale of services rendered in the rest of India could have been achieved by isolating a portion of the inputs/input services as attributable to services rendered in the State of Jammu and Kashmir. In such a situation, there is no logic or soundness to hold that the inputs/input services used for rendering ‘broadcasting service' should be restricted to such as evidenced to have been used for rendering service in the rest of India. In these circumstances the availment the CENVAT credit to the full extent cannot be questioned. It's utilization thereof cannot also be restricted.

+ If the output service were to be distinctly identifiable as one which is exempt (other than territorially) in contradistinction with a taxable service and if the input/input services were distinctly divisible, though not procured separately, the provisions of rule 6 of CENVAT Credit Rules, 2004 would come into play. As the entire quantum of input services would be required to provide the taxable service, the scope for delineating that pertaining to the exempt service cannot be said to exist. Legislative intent would appear to have been targeted at precluding the utilization of CENVAT Credit that would not be available had the assessee restricted itself to taxable output services.

Holding that there is no justification for invoking rule 6 (3) of CCR, 2004 to disallow any portion of the availed credit, the impugned order was set aside and the appeal was allowed.

(See 2017-TIOL-1251-CESTAT-MUM)