CESTAT | Procedural lapse is condonable and denial of substantive right is unjustified; Tribunal allows appeal under R. 6 (3A) (ii) of Cenvat Credit Rules, 2004

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Sulekha Beevi (Judicial Member) and P. Anjani Kumar (Technical Member) allowed an appeal which was filed aggrieved by the judgment and order of the Commissioner (Appeals).

The appellants had entered into a Business Solutions Agreement and another Business Promotion Agreement with Amazon Ltd. and as per the agreement the appellants had to store various merchandizes in the Amazon warehouse and facilitate dispatch of the goods for which Amazon was providing BSS and warehousing services. Service tax was collected from the appellants by Amazon for such services provided to appellant as these were input services for the appellant. The appellants were thus engaged not only in trading but also providing taxable service. The appellants started availing input tax credit on the service tax collected from them by Amazon on Business Support Service and Storage and Warehousing Services. They were advised that they were not eligible to avail credit on such service tax paid to M/s.Amazon and therefore they, as an abundant caution to avoid penal proceedings, reversed the credit by making cash payment along with interest for the input tax credit availed by them during this period. This was informed to the department. Since the appellants had utilized the input services for trading (exempted services) as well as taxable output services, they opted for reversal of proportionate credit as provided under Rule 6 (3A) (ii) of Cenvat Credit Rules, 2004. As the credit reversed was in excess of the proportionate credit to be reversed, they had filed a refund claim. After due process of law, the original authority rejected the refund claim entirely. In appeal, the Commissioner (Appeals) held that appellants will have to reverse/pay credit along with interest as per Rule 6(3A) (i) @ 7% of the value of exempted services and therefore were eligible for a partial refund and appropriate interest. Aggrieved by which, the instant appeal was filed.

The Counsel for the appellant, G. Natarajan submitted that the appellants had not maintained separate accounts of the input services used for exempted services (trading) and taxable output services and on wrong advice, reversed the entire input service credit by way of paying cash and on receiving proper legal advice, they filed the refund claims of excess payment.

The Tribunal observed that the appellant has been compelled to reverse credit @ 7% of the value of exempted services under Rule 6 (3) (i) read with Rule 6 (3D) (c) only for the reason they have not followed the procedure of intimating the department with regard to the option exercised. The Tribunal further laid emphasis on the judgment of the Tribunal in Philips Carbon Black Ltd. v. CCE & ST Durgapur, 2020 (1) TMI 530-CESTAT Kolkata,

“9. The issue can be looked at from another angle as well. Rule 6(1) of the CCR inter alia provides that cenvat credit shall not be made available in respect of inputs used in the manufacture and clearance of exempted goods. The reason being that there is no tax cascading requiring elimination in such a situation. Therefore, the said Rule 6(1) is clearly not aimed at revenue maximization but credit neutralization. Rule 6(2) and Rule 6(3) of the CCR are only aimed at securing compliance with the substantive provision contained in Rule 6(1) of the CCR where common inputs are used in the manufacture of a dutiable and exempted final product. Reversal of proportionate cenvat credit in respect of the common input used in the manufacture of exempted goods is an option duly permitted under Rule 6(3)(ii) of the CCR itself. Non-compliance with the procedure prescribed under Rule 6(3A) of the CCR does not result in the manufacturer losing his substantive right to avail the option of reversing proportionate credit, as such procedural lapse is condonable and denial of substantive right on such procedural failure is unjustified in light of the decision of the Tribunal in the Cranes & Structural Engineers Case (supra). Therefore, the imposition of Rule 6(3)(i) of the CCR for demanding payment of 5% / 6% of the sales value of electricity is even otherwise unsustainable.”

The Tribunal held that non-compliance with the procedure prescribed under Rule 6 (3A) of the CCR does not result in losing substantive right to avail the option of reversing proportionate credit as envisaged in Rule 6(3) (i); That procedural lapse is condonable and denial of substantive right is unjustified keeping in mind the above case.

The Tribunal allowed the appeal and held that view taken by the Commissioner (Appeals) that the appellant has to reverse credit as per Rule 6 (3) (i) was against the provisions of law. The Tribunal further directed the lower authority to quantify the amount eligible for a refund after complying with Rule 6 (3) (i) being the proportionate credit availed on exempted services.[Rockey Marketing (Chennai) (P) Ltd. v. CST, 2020 SCC OnLine CESTAT 266,  decided on 03-11-2020]


Suchita Shukla, Editorial Assistant has put this story together

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