No bar in utilisation of credit balance as on 1.4.2008 after the Cenvat Credit Rules were amended.

PJ/Case law/2014-15/2203

Case:-SPENCER'S RETAIL LTD Vs COMMISSIONER OF SERVICE TAX, CHENNAI

Citation:- 2014-TIOL-601-CESTAT-MAD

Brief facts:-The applicant runs a retail outlet and their main line of business is selling goods in retail. They also provide service of selling space for advertisement. On such services, they have been paying service tax and taking Cenvat Credit on input services common to trading as well as taxable output service. Out of such cenvat credit taken, During the period 01-04-2006 to 01-04-2008 most of the credits related to services which were specified in rule 6 (5) of the Cenvat Credit Rules, 2004 which allowed 100% of the credit of tax paid on services specified in the sub-rule irrespective of the fact whether the services were utilized partially in exempted services and partially in taxable services. After taking such credit, they were complying with the provisions of extant rule 6(3) of CCR 04 by restricting the utilization of Cenvat credit to the extent of 20% of service tax payable during each period. They were filing the cenvat returns accordingly. The applicant had certain amount of credit lying in their credit as on 31-03-2008. On 01-04-2008, Cenvat Credit Rules, 2004 were amended. Rule 6(3) was replaced by a new sub-rule which envisaged proportionate reversal of credit with reference to the ratio of value of exempted goods to value of taxable goods and the restriction in utilization of cenvat credit to the extent of 20% was removed. The applicant utilized the credit that was lying unutilized as on 31-03-2008 during the period 2009 onwards. Subsequently, on 01-04-2011, the definition of "exempted services" was amended to specifically state that trading will also be covered as an exempted service by adding an Explanation under rule 2(e).

Appellant’s contentions:- Arguing for the applicants, the learned counsel submits that they are not contesting the amount of Rs.18,98,473/- which relates to input services which were used exclusively for trading activity. They have paid the said amount after adjudication and they have enclosed the challan with appeal papers. The counsel submits that the issue as to how trading was to be treated prior to 01-04-08 was clarified by CBEC vide Circular No. 943/04/2011-CX dt. 29-11-2011 at Sl. No. 7 and as per this clarification trading was to be treated as exempted services even prior to 01-04-08 and all what required was to enforce the restriction of 20% in utilization which they have complied with. So the first ground of Revenue for making the demand is not sustainable. On the issue whether opening balance lying in their Cenvat credit account as on 01-04-08 could be utilized, CBEC has clarified vide Circular F. No. 137/72/2008-CX-4 dated 21-11-2008 that the credit that was accumulated will not get lapsed. Therefore, it his submission that accumulation of credit and its utilization was in accordance with the legal provisions as clarified by CBEC therefore his appeal may be admitted without any pre-deposit. He also pleaded financial hardship.

Respondent’s contentions:-Opposing the prayer, Ld. AR for Revenue reiterates the findings in the adjudication order. She also submits that credit was taken for the services rendered in March 2010 for which payment was made in April 2010 which is not legally correct. As a rejoinder, the learned advocate submits that payment to the service providers were made in April 2010 and they became eligible for credit from April 2010. So the only issue is about interest for a month which will be a very small account.

On audit of the books of account of the applicant, Revenue was of the view that credit of services for trading should have been taken because trading was not a service at all. Further Revenue was of the view credit should have been taken only based on the ratio of value of taxable services provided to value of goods traded. Revenue was also of the view that utilization of credit lying unutilized as on 01-04-2008 was not proper. In this regard, two show cause notices dated 13-09-2011 and 20-04-2012 were issued for the periods April 06 to Sept 10 and Oct 10 to March 11. The Show cause notices involved certain other minor issues like taking of credit without payment of value of service to the service provider, adjustment of excess tax paid in one period in the subsequent period etc.

Reasoning of judgment:- We have considered the submissions of both sides. We note that the dispute on the issue whether trading could be treated as an exempted service for the purpose of Cenvat credit stands clarified by CBEC in favour of the appellant. Prima facie, we agree with the advocate for the applicant because credit was taken in accordance with provisions of rule 6(5) as it was existing at the relevant time and in the matter of utilization, applicant was complying with extant rule 6(3) of the rules as it was existing at the relevant time. Cenvat Credit so accumulated could not lapse in the absence of any legal provisions to that effect. This position also is accepted by CBEC also in its circular. So its subsequent utilisation cannot be faulted. The other issues adjudicated are not primarily of a nature involving any substantial loss of revenue but only involving procedural infractions, interest etc. So we do not consider it necessary to dwell in detail on those issues at this stage. In the facts and circumstances of the case as discussed above, we consider it proper to admit the appeal without any pre-deposit and we order accordingly. Further, there shall be stay on collection of such dues arising from the impugned order during pendency of the appeal.

Decision:- The stay application was allowed.

Comment:- The essence of the case is that accumulated CENVAT credit could not lapse in the absence of any legal provision to that effect. This position was also accepted by CBEC so there is no default in utilization of credit. Moreover, as the assessee was complying with the provisions of Rule 6(5) as were in existence during the material time, stay application was allowed.

Prepared by:- Monika Tak

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PJ/Case law/2014-15/2203

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