Custom, Excise & Service Tax Tribunal
Alembic Ltd vs Vadodara-I on 23 October, 2018
1
In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
Appeal No. ST/11475,11476,10017,10018/2018-DB
[Arising out of OIO-VAD-EXCUS-001-COM-07-08-18-19 dated 17.05.2018 passed by the CCE-Vadodara-i]
[Arising out of OIA-VAD-EXCUS-001-APP-204-2017-18 dated 11.07.2017 passed by the CCE-Vadodara-i]
[Arising out of OIA-VAD-EXCUS-001-APP-210-2017-18 dated 20.07.2017 passed by the CCE-Vadodara-i]
M/s Alembic Ltd. Appellant
Shreno Ltd.
Vs
C.C.E. & S.T. Vadodara-i Respondent
Represented by:
For Appellant: Shri. S.R. Dixit (Adv.) For Respondent: Shri. J. Nagori (A.R.) CORAM:
HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. RAJU, MEMBER (TECHNICAL) Date of Hearing: 16.07.2018 Date of Decision:23.10.2018 Final Order No. A / 12229-12232 /2018 Per: Ramesh Nair These appeals have been filed by M/s. Alembic Ltd. and M/s.
Shreno Ltd. The details of the period, issue and amount involved in these appeals are as follows:
M/s. Alembic Ltd.
Sr. Appeal No. Cenvat Credit Refund Amount Period SCN Remarks
No. Amount Involved date
1 ST/10018/2018 NA Rs.1,17,68,904/ 2010-11 21.9.16 Refund
- to 2014- issue
15
2 ST/11475/2018 Rs.6,37,39,636/- NA 24.7.14 2.11.17 Demand
to under Rule
31.12.16 6 of CCR,
04
M/s. Shreno Ltd.
Sr. Appeal No. Cenvat Credit Refund Period SCN Remarks
No. Amount Amount Involved date
1 ST/10017/2018 NA Rs.65,30,867/- 2010-11 21.9.16 Refund
to 2014- issue
15
2|Page ST/11475,11476,10017,10018/2018-DB
2 ST/11476/2018 Rs.4,19,96,394/- NA 24.2.14 to 2.11.17 Demand
30.9.16 under Rule
6 of CCR,
04
1.1 The facts involved in the above appeals are identical. The Appellants are engaged in development of real estate projects. They had availed Cenvat Credit of Service Tax paid on various input services used to construct residential complex. They were registered with Service Tax authorities as service provider and had paid Service Tax under works contract service category for the residential units sold to various customers from time to time.
1.2 That in case of M/s. Alembic Ltd. on 24.7.14, their residential project was awarded Completion Certificate. Similarly, in case of M/s.
Shreno Ltd. the Completion Certificate was obtained for their residential project on 24.2.14. As on date of obtaining such Completion Certificate, approx. 32% and 35% property respectively, remained unsold by the Appellants and for which no bookings were made. As such, whenever such properties would be sold in future, no Service Tax would be payable thereon.
1.3 The Appellants had given due intimation to jurisdictional Service Tax authorities after receipt of Completion Certificate that they shall be availing only proportionate Cenvat Credit on input services received by them after obtaining completion certificate, on basis of square feet area basis, which suffered the levy of Service Tax as compared to the area which was converted into immovable property and on which no Service Tax would be paid.
3|Page ST/11475,11476,10017,10018/2018-DB 1.4 In the meanwhile, during the course of CERA audit, the Appellants were made to reverse/pay credit amounting to Rs. 1,17,68,904/-(in case of M/s. Alembic) and Rs.65,30,867/-(in case of M/s. Shreno), towards the proportionate Cenvat credit availed by them during for the period 2010-2011 till obtaining Completion Certificate, at which time their output service activity was wholly taxable, on the ground that after receipt of completion certificate, the property had become immovable property and in case of future sale thereof, no service tax would have been payable and credit in proportion to "area which did not attract Service Tax" compared to the entire property area. These amounts were paid by the Appellants under protest at the insistence of CERA auditors.
1.5 That while such amounts were paid under protest and no SCN was issued by revenue authorities in this regard, the Appellants had sought refund thereof. Subsequent thereto, the revenue authorities issued separate SCNs, demanding 6%/8%/10% amount of sale of immovable property after obtaining Completion certificate where no Service Tax was paid by the Appellant, on the ground that they had availed Cenvat Credit and provided taxable as well as exempt services (sale of immovable property), and they had not maintained separate accounts. The amounts paid under protest for input services received during the period 2010 till obtaining completion certificate, viz. Rs. 1,17,68,904/- (in case of M/s. Alembic) and Rs.65,30,867/-(in case of M/s. Shreno), were also sought to be appropriated against such demands. Such demand were confirmed against the Appellants under Rule 6 of CCR, 04, vide the impugned orders passed by the Ld. Commissioner.
4|Page ST/11475,11476,10017,10018/2018-DB 1.6 In the meanwhile, refunds also came to be rejected and such
rejection upheld by first Appellate authority vide orders which are also impugned in the present bunch of appeals, on the grounds that such credit was correctly reversed and was not required to be refunded.
2. Shri. S. R. Dixit, Ld. Counsel appearing for the Appellants argued that while the Appellants were regularly paying service tax on entire income for the said projects up to receipt of the completion certificate, however, after obtaining the completion certificate for the project, the same constituted immovable property and as per the provisions of service tax laws, the Appellants continued to pay service tax even after receipt of completion of certificate in respect of properties for which any amount of consideration was received prior to obtaining completion certificate. Whereas properties exclusively sold after receipt of completion certificate, being in the nature of immovable properties, where no portion of the property including advance was received prior to receipt of completion certificate, the Appellants treated the same to be sale of immovable property and did not pay any service tax at all on that.
2.1 It was further argued that both the Appellants had duly informed the Revenue Authorities in writing, at the time of receiving completion certificate, whereby they had informed that since completion certificate was obtained for the project, they shall be availing credit only in respect of the percentage of property on which service tax was paid (on square foot basis) whereas no credit will be availed in respect of the percentage of property (on square foot basis) which was converted into immovable property and for which no advance was ever received by them at all.
5|Page ST/11475,11476,10017,10018/2018-DB 2.2 It is the case of the Appellants that they had duly maintained separate accounts, on scientific basis, whereby they had only availed proportionate credit periodically after receipt of completion certificate on basis of the square foot property on which service tax was paid by them whereas they had not availed any Cenvat credit on input services which were exclusively pertaining to sale of immovable property and they had also not availed proportionate credit in respect of input services pertaining to the percentage of property converted into immovable property after receipt of completion certificate, on basis of the square foot area. The Appellants have also relied upon two separate CA Certificates dated 03.07.18 as well as letter dated 26.04.18 issued by both the Appellants to the Revenue Authorities, intimating the fact of proportionate availment of Cenvat credit in the above manner. The said certificates are also supported with detailed certified workings and calculations, alongwith invoices on sample basis, which shows that while a higher service tax was actually paid on input services, the Appellants had availed only proportionate credit based on the percentage of immovable property which had suffered service tax levy in the manner stated hereinabove.
2.3 The learned advocate took us through the provisions of Cenvat Credit Rules more particularly Rule 2(e) of the said rules which defines the term exempt service as also the definition of the term service itself as defined under Section 65B(44) of the Finance Act, 1994. It is the case of the Appellants that in case of sale of immovable property after receipt of completion certificate, the same is neither sale of goods nor services, as per Law and hence the same can never be exempted service within the meaning of Cenvat Credit Rules, 2004 at all, which requires that only a taxable service which is exempt from whole of service tax
6|Page ST/11475,11476,10017,10018/2018-DB or a service on which no service tax is leviable under Section 66B of the Finance Act, 1994 or taxable service is part of values exempt subject to the condition of non-availment of credit, which alone can be treated as an exempt service and sale of immovable property being specifically kept out of the purview of the term "service" as per the Finance Act 1994 itself, the same can never be exempt service. It is a case of the Appellants that for the said reasons, Rule 6 of the Cenvat Credit Rules, 2004 in toto cannot be applicable to the Appellants at all. That the whole of the demand which is raised under Rule 6 of the Cenvat Rredit Rules, 2004 therefore deserves to be dropped/vacated.
2.4 It was also argued by the Appellants that it is only by virtue of amendment carried out in the Cenvat Credit Rules while notification no. 13/2016-CE(NT) dated 01.03.2016 whereby Explanation 3 was inserted to Rule 6 of the Cenvat Credit Rules, 2004 which provided, for the first time on prospective basis that the exempted service defined under Rule 2(e) of the CenvatCredit Rules shall include an activity which is not a service as defined under Section 65B (44) of the Finance Act, 1994. 2.5 It was submitted that such explanation was not required if sale of immovable property was otherwise covered as exempt service since the statue does not waste it was. It was further submitted that it is only by virtue of such prospective amendment that for the first time, Rule 6 of the Cenvat credit rules 2004 can include sale of property after receipt of completion certificate. Since almost whole of the material period involved in the present appeal falls prior to such amendment being carried out w.e.f. 01.04.2016 and only part of the period falls after 01.04.2016 and in any case since the Appellants had maintained separate accounts in this regard anyway, no demand as confirmed vide
7|Page ST/11475,11476,10017,10018/2018-DB the impugned order can survive against them. The Appellants also argued that in terms of Rule 3 of the Cenvat Credit Rules, 2004 the Cenvat credit eligibility has to be examined at the time when the service is received. Rule 6 of the Cenvat Credit Rules, 2004 deals with only the prospective liability i.e. the credits availed on and after the output activity becoming exempt and not to services which were availed at the time when the output service was wholly taxable in the hand of the Appellants. It was further argued that Rule 11 of the Cenvat Credit Rules, 2004 is the only provision under which the credit availed in the past can be called into question and as explained by TRU vide its clarification no. 334/1/2007-TRU dated 28.02.2007 and as taken note of by Hon'ble Madras High Court in the case of TAFE 2015(320) E.L.T. 357(Mad) as further upheld by the Hon'ble apex court as reported at 2015 (324) E.L.T. A86(SC), the provisions of Rule 11 of the Cenvat credit rules, do not require any reversal of credit in respect of input services unlike the mischief created for inputs contained in stock or contained in semi-finished state as on the date when the output service becomes exempt.
2.6 The Appellants heavily relied upon various decisions of the Hon'ble Tribunal as also various high courts as well as Hon'ble supreme court of India, in support of the claim that once credit was availed at the time when the output activity was dutiable/taxable, such credit cannot be denied, unless there are specific provisions to deny so, when the output service becomes exempt /non-taxable later on. The Appellants relied upon the following decisions in support of this contention.
HMT Ltd. 2008(232) ELT 217(Tri-LB)
8|Page ST/11475,11476,10017,10018/2018-DB HMT (TD) Ltd. 2015(322) ELT 342(P&H) TAFE Ltd. 2011(268) ELT 49(Kar) TAFE Ltd. 2015(322) ELT A 185(SC) TAFE Ltd. 2015(322) ELT 864(Kar) PSL Corrosion Control Services Ltd. 2016(339) ELT 406(Guj) PSLCorrosion Control Services Ltd. 2016(339) ELT A208(SC) Ashok Iron & Steel Fabricators 2002(140) ELT 277(Tri-LB) Ashok Iron & Steel Fabricators 2003(156) ELT A212(SC) 2.7 The Appellants also submit that the present situation is akin to services being provided to the state of Jammu and Kashmir to which the provision of Finance act, 1994 do not extend and service tax is not payable thereon, to hold that Rule 6 of the Cenvat Credit Rules 2004 cannot apply to such circumstances at all. The Appellants relied upon various decisions in support of this contention. That as a corollary, the Appellants also argued that after receipt of completion certificate in respect of the property, when certain portion of the property will not be subjected to tax later on, the position is similar to "remission" being granted under central excise laws, wherein the finished goods will not attract central excise duty and still it was held that the credit cannot be denied to the assesee even when duty will not be paid on the finished goods since there was no specific provision prohibiting such credit entitlement to the assessee.
2.8 It is the case of the Appellants that as held by the Hon'ble Tribunal in the case of foods, fats and fertilizers Ltd 2009 (244) E.L.T. (Tri-Bang), when a scientific base is adopted to avail only proportionate credit instead of full credit involved in an invoice, the same amounts to
9|Page ST/11475,11476,10017,10018/2018-DB maintaining separate accounts. In the present case, after receiving Completion Certificate, the Appellants have availed Cenvat credit not on the entire tax involved on input services but only on proportionate basis and such proportion being worked out on basis of the percentage of the property on square feet basis which attract service tax as compared to the proportion which did not attract service tax and hence the said decision is applicable to the present case.
2.9 As regards the refund issue, it was argued that in the eventuality the main demand itself does not survive, the refund will ipso facto become applicable. It was argued by the Appellants that even otherwise, since no show cause notice is issued for the period from 2010-2011 to 2014-2015 at all qua such proportionate reversal made by the Appellant, seeking to appropriate the amounts paid under protest, the Revenue Authorities have no right to retain the same and it has to be duly returned/refunded to the Appellants forthwith. The Appellants relied upon various case laws in support of this contention.
3. That on the other hand, Shri J. Nagori, the AR on behalf of the Revenue reiterated the findings of the impugned orders passed by the Lower Authorities. He further submitted that the proportionate credit required to be reversed in respect of non-taxable transaction will necessarily include the whole of credit availed by the Appellants right from the inception of the project and cannot be taken to be limited only to the credits availed after receiving the completion certificate. He further argued that the Appellants did not follow the requirements of filing intimation etc. as required under Rule 6(3) of the Cenvat Credit Rules 2004 and hence the demand raised by the Lower Authorities is justifiable. The refund is also not legally allowable to them since the 10 | P a g e ST/11475,11476,10017,10018/2018- DB amount was legally payable and which has been appropriated against their total dues/demands by the original authority.
4. We have carefully considered the submissions made by both the sides and perused the records. We find that the Appellants had availed Cenvat Credit in the course of constructing the real estate projects developed by them, in terms of Rule 3 of the Cenvat Credit Rules, 2004. There is no dispute on such availment of Credit in the present proceedings. The dispute is limited to whether the Appellants are required to reverse any portion of the Cenvat Credit availed by them, after receipt of Completion Certificate for the projects, since thereafter, they will not be discharging Service Tax liability on properties sold thereafter, where no advance was received prior to receipt of Completion Certificate at all. The Appellants however, was paying Service Tax in case of properties which were not yet sold by way of sale deed even after obtaining Completion Certificate, however where advances were received for such properties prior to the date of obtaining such Completion Certificate.
5. The Appellants submitted that they availed only proportionate Cenvat Credit, determined on scientific basis by them (considering square foot area where Service Tax was paid and balance area where Service Tax will not be paid after Completion Certificate). They had not only given due intimation in this regard at the time of obtaining completion certificate but also produced CA certificate to support their case in this regard. The present appeals involves the following legal questions:
11 | P a g e ST/11475,11476,10017,10018/2018-
DB a. Whether receipt of consideration for residential units sold as immovable property after receipt of completion certificate amounts to providing exempted service and Rule 6 of the CCR, 04 is applicable in such case and as such, whether the Appellants are liable to pay 8%/10% amount of exempted value under Rule 6 of the CCR, 04?
b. Whether Credit can be allowed to the Appellants under Rule 3 of the CCR, 04 in such circumstances?
c. Whether the Appellants can be said to have "maintained proper separate accounts" as required under Rule 6 of the CCR, 04? d. Whether the Appellants are required to reverse Cenvat Credit availed during the period when output service was taxable before receipt of Completion Certificate, since such services were availed to construct entire property, and portion of such property did not attract Service Tax after receipt of Completion Certificate?
e. Connected to the question (d), whether the Appellants are eligible to seek refund of the amount paid under protest towards Credit availed from 2010 till receipt of completion certificate, based on CERA audit objection wherein such credit was sought to be reversed based on considering square foot area where Service Tax was paid and balance area where Service Tax will not be paid after Completion Certificate. 12 | P a g e ST/11475,11476,10017,10018/2018- DB
6. We find some merit in the submission made by the Ld. Counsel for the Appellants that for the purpose of invoking provisions of Rule 6 of the Cenvat Credit Rules, 2004, in the present set of facts and circumstances, the output service must first be exempt service. That upon receipt of Completion Certificate for the projects, the output activity of sale of residential units becomes "non-service" as per provisions of Section 65B of the Finance Act, 1994 read with definition of the term "exempt service" under Rule 2(e) of the CCR, 04. This is further supported by specific amendment carried out in Rule 6(1) of the CCR, 04 whereby w.e.f. 1.4.16, Explanation 3 was inserted specifically dealing with a situation as in the present case, where a deeming fiction was created that for the purposes of Rule 6 of CCR, 04, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a 'service' as defined in section 65B(44) of the Finance Act, 1994 provided that such activity has used inputs or input services. That there was no such stipulation prior to 1.4.16 in law and prima facie such situation was not to be treated as exempt service and did not attract the mischief created under Rule 6 of the CCR, 04.
7. However, for the period prior to 1.4.16, does this mean that a service provider can take and retain full credit on input services received even after receipt of Completion Certificate? In our considered view, the situation will be governed by Rule 3 of the CCR, 04 till such time, i.e. till the time Rule 6 was specifically made applicable by virtue of the deeming fiction created.
8. It is trite law and in terms of Rule 3 of the CCR, 04, Cenvat Credit of Service Tax paid on input services used to provide output service, is eligible. In fact, Hon'ble Mumbai High Court in the case of Mercedes 13 | P a g e ST/11475,11476,10017,10018/2018- DB Benz India P. Ltd. 2016(41) STR 577(Bom) held, qua "trading activity"
vis-à-vis Rule 6 of the CCR, 04 mechanism, that it could not have been the intention of the Government to encourage trading by allowing full credit prior to 1.4.11 and that the "value" of exempt supply in nature of trading, as provided after 1.4.11 in law for complying with proportionate credit requirements, should be made applicable to the period prior to 1.4.11 as well.
9. In the present case, it is evident that the Appellants had started taking only proportionate credit after receipt of Completion Certificate which was after due intimation to the revenue department and also certified by independent CA. It is the case of the Appellants before this court that Rule 6 of the CCR, 04 in toto cannot apply prior to 1.4.16 to their case, since sale of immovable property is not exempt service at all. That in light of the provisions of Rule 3 of the CCR, 04, we are of the considered view that the Appellant cannot avail full Cenvat Credit on input services received after obtaining completion certificate, however, the Appellants cannot be expected to pay an amount equal to 8%/10% of sale price of immovable property after obtaining such Completion Certificate where no Service Tax is paid as if it is sale of immovable property since Rule 6 of the CCR, 04 per se does not apply to the present case until 1.4.16 at all. Even after 1.4.16, since the Appellants had availed only proportionate credit, we are of the view that they are not legally required to pay 8%/10% amount under Rule 6(3) of the CCR, 04 since they can be said to have maintained separate accounts as required under Rule 6(2) of the CCR, 04.
14 | P a g e ST/11475,11476,10017,10018/2018- DB
10. The Appellants have rightly relied upon the decision in the case of Foods, Fats and Fertilisers (supra) wherein it was held as follows:
"The main allegation is that they did not maintain separate accounts for receipt, consumption and inventory of the inputs as prescribed in the Cenvat Credit Rules, 2002/2004. It is seen that the Appellants had not taken entire credit on the duty paid on the inputs used in dutiable and exempted products. It is on record that they had availed credit on pro-rata basis. In other words, the credit has been taken only in respect of inputs used in dutiable products. It is a fact that the Appellants have stated that they could not have separate inventory for the input used in dutiable and exempted products. That does not mean that they have not maintained separate accounts for the receipt and consumption of inputs used in dutiable and exempted products. A distinction was made between maintain separate inventory and accounts of inventory referring to Rule 57CC(9) and Rule 6. Our attention was invited to the sample copies of the work register for consumption details of the inputs along with entries in Cenvat register availing pro-rata credit. The details of the availment of credit on pro-rata basis in respect of hydrogen gas was submitted in reply to the show cause notice dated 28-1-2008. Similarly in respect of Crude palm oil and Nickel Catalyst. The pro-rata availment details of credit has been given, All these shows that the Appellants had not availed the entire credit for both dutiable and exempted products. Therefore allegation of the Department is not sustainable. There is indeed a separate account of the receipt and consumption of the inputs used in dutiable and exempted products. The methodology of pro-rata allocation of Hydrogen Gas utilized in the 15 | P a g e ST/11475,11476,10017,10018/2018- DB manufacture of vanaspathi (exempted final products) and stearic acid (dutiable final products) were also explained and the detailed steps and formulas were also brought on records. We have also gone through the methodology for arriving at the pro-rata allocation of hydrogen gas. This is given in Page 53 to 55 of the Paper Book. The Appellants had adopted a scientific method of calculating the hydrogen gas consumed in exempted products. From the total hydrogen gas consumed, the quantity of hydrogen gas consumed for the manufacture of stearic acid is subtracted and balance of the quantity of hydrogen gas consumed in the dutiable products. The methodology adopted is scientific. In view of the above, it is not correct to say that the Appellants, had not maintained separate accounts of receipt, consumption and inventory. In fact, this Bench in the case of Sri Ramachandra Paper Boards v. Commissioner of Central Excise, Visakhapatnam [2007 (218) E.L.T. 386 (Tri. - Bang.)] has held that there is no stipulation in the rules that the inputs used in both exempted and dutiable products should be stored separately. In these circumstances the demand of 8%/10% of the value of the exempted products is not at all justified. Further on going through the records, we find that the Appellants had kept the Department informed of the practice adopted by them. Therefore there is no justification for invocation of longer period and imposition of mandatory penalty."
11. We accordingly of the view that having taken only proportionate Credit on input services after receipt of Completion certificate, duly backed by CA certificate and certified work sheets for the proportionate credits availed after Completion Certificate and also demonstrated on 16 | P a g e ST/11475,11476,10017,10018/2018- DB sample basis during the course of hearing, the Appellants have fulfilled its obligation under Rule 3 of the CCR, 04 read with Rule 6 thereof and as such, they are not liable to pay any amount equal to 8%/10% of the "sale price of immovable property" after receipt of completion certificate under Rule 6 of the CCR, 04 as confirmed by the Adjudicating Commissioner against them.
12. As regards to the next issue of whether the Appellants were also required to reverse proportionate credit, out of the valid input service credits availed by them during the period 2010 till obtaining Completion Certificate, i.e. availing during the time when whole of output service of construction of residential complex was taxable. It was argued by the Appellants that out of business prudence, no developer wishes to have a situation where the properties are not sold as soon as possible and the property is converted into immovable property after receipt of completion certificate. It was also argued that as per Rule 3 of the CCR, 04, credit eligibility is to be examined as on date of receipt of input service and not governed by later developments such as portion of property getting converted into immovable property after receipt of completion certificate. It was also argued that while Rule 6 of the CCR, 04 deals with credits availed afresh, i.e. after output activity becoming exempt, however Rule 11 is the only provision which deals with credits availed in the past when output activity was wholly taxable however, at later point in time, became exempt.
13. We agree with such plea raised by the Appellant. While the law does not intend to allow any undue benefit to a service provider in terms of Cenvat Credit of Service Tax paid on input services used in providing non-taxable output activity, however, as held by the Hon'ble Apex Court 17 | P a g e ST/11475,11476,10017,10018/2018- DB in the case of Dai IchiKarkaria 1999(112) ELT 516(SC), Modvat / Cenvat Credit is a vested right. Once it is legally and validly availed, the same cannot be denied and/or recovered unless specific provisions exist for the same. The Appellants have also correctly relied upon the decisions / judgments in the case of HMT Ltd., TAFE, Ashok Iron & Steel Fabricators (supra) wherein an identical situation qua "inputs" used in production of dutiable finished goods was involved, where on a particular date, the said Finished goods became exempt and the issue involved was as regards credits availed at a time when such Finished goods was otherwise dutiable.
14. It has been a consistent judicial view, including that of the Hon'ble Apex Court in such cases, that credit entitlement is on the date of receipt of inputs when the output activity was wholly dutiable. Merely because the finished goods eventually became exempt later on, the credit availed on inputs which were contained in semi-finished / finished goods state was held as not deniable. The present case is squarely covered vide such ratio laid down by higher courts.
15. In fact, in order to overcome such legal position, transitional provisions were introduced in the Modvat/Cenvat Credit Rules. That Rule 11 of the Cenvat Credit Rules, 2004 as it existed during the material period, provides that where any inputs are contained in semi-finished or finished goods form, as on date when the finished goods becomes exempt or output services become exempt, such credit will have to be reversed. As clarified vide TRU clarification No.334/1/2007-TRU dt.28.2.07 and also taken note of by Hon'ble Madras High Court in the case of TAFE 2015(320) ELT 357(Mad) and eventually upheld by Hon'ble Apex Court 2015(324) ELT A86(SC), such embargo applies only to 18 | P a g e ST/11475,11476,10017,10018/2018- DB inputs and not to input services at all. Admittedly, in the present case, the dispute is limited to credits availed on input services during a time when output service was wholly taxable however, portion thereof became non-taxable on account of receipt of Completion Certificate later on.
16. This being the case, a harmonious reading of Rule 3 of the CCR, 04 read with Rule 6 and Rule 11 of the said Rules will suggest that eligibility / entitlement to credit has to be examined only at the time of receipt of input service and once it is found to be availed at a time when output service is wholly taxable, and the said credit is availed legitimately, the same cannot be denied and/or recovered unless specific machinery provisions are made in this regard. As per above TRU clarification dt.28.2.07, even if one assumed sale of immovable property after Completion Certificate to be "exempt service" even going by the findings in the impugned order, even then there is no legal requirement to reverse any credit availed on "input services" in the past (prior to obtaining Completion Certificate) at all.
17. The Ld. Counsel for the Appellants had also tried to compare the present position to one where "remission of duty" is granted on finished goods in case the same is destroyed or lost as well as when services are provided to the state of J&K, however, considering the fact that legally, the credits availed at a time when output service was wholly taxable as well as the fact that after receipt of completion certificate, the Appellants have anyway availed only proportionate credit by maintaining separate accounts, such other pleas need not be adverted to.
18. From the analysis of all the legal provisions for the purpose of Cenvat Credit in respect of input service, we find that before obtaining 19 | P a g e ST/11475,11476,10017,10018/2018- DB the completion certificate, the service of the appellant was very much taxable during which period the appellant received input service. The relevant sub Rule (7) of Rule 4 of Cenvat Credit Rules, 2004 reads as under:-
Rule 4(7) 4(7) The Cenvat Credit in respect of Input service shall be allowed, on or after the day on which the invoice, bill or as the case may be, challan referred to in Rule 9 is received:
"Provided that in case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such input service shall be allowed on or after the day on which the payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in Rule 9:
Provided further that in case the payment of the value of input service and the service tax paid or payable as indicated in invoice, bill, or as the case may be, challan referred to in Rule 9, is not made within three months of the date of the invoice, bill, or as the case may be challan, the manufacturer of the service provider who has taken credit on such input service, shall pay an amount equal to the cenvat credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these Rules:
Provided also that if any payment of part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so refunded or credited:
CENVAT credit in respect of invoice, bill or as the case may be, challan referred to in rule 9 issued before the first day of April 2011 shall be allowed, on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in Rule 9.
Explanation -I The amount mentioned in this sub rule, unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the fifth day of the following month except for the month of March, when such payment shall be made on or before 31stMarch.
20 | P a g e ST/11475,11476,10017,10018/2018- DB Explanation -II If the manufacturer of goods or the provider of output service , fails to pay the amount payable under this sub rule , it shall be recovered , in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.
Explanation -III In case of manufacturer who avails the exemption under a notification based on the value of clearance in the financial year and service provider who is an individual or proprietor ship firm or partnership firm , the expression, "following month" and the "month of March" occurring in sub rule- 7 shall be read respectively as "following quarter" or "quarter ending with the month of March"
From the above rule, it is clear that the assesse is not required to wait till output service is sold to the service recipient. The assesse can take the credit immediately after the day on bill/ challan of input service is received. In the present case, there is no dispute that the appellant have availed the credit after receipt of bill, challan in respect of input service, therefore, the appellant was legally entitled to take the credit on the date after the receipt of service Bills/ Challans. Therefore, the availment of cenvat credit by the appellant is absolutely legal and correct in accordance with Rule 4(7) of Cenvat Credit Rules, 2004. At the time of taking credit, there is no existence of any exempted service, therefore, there is no application of Rule 6. The part of the service was exempted only after obtaining completion certificate. Thereafter, the appellant was not required to avail the cenvat credit on the input service, if any, received after obtaining the completion certificate. In the present case, the appellant have either not availed the cenvat credit in respect of the services received after obtaining the completion certificate in respect of exempted service or availed proportionate credit attributed to the taxable output service. For this reason also Rule 6 has no application for the period after obtaining the completion Certificate.
21 | P a g e ST/11475,11476,10017,10018/2018- DB In case of service becomes exempted at a later stage, unlike the provision for manufactured goods provided under Rule 11(1)(2) and (3), there is no such provision in respect of the service. The only provision for the service is provided under Sub-Rule (4) of Rule 11 which reads as under:
"11(4) A person provider of output service shall be required to pay an amount equivalent to the CENVAT credit, if any, taken by him in respect of inputs received for providing the said service and is lying in stock or is contained in the taxable service pending to be provided, when he opts for exemption from payment of whole of the service tax leviable on such taxable service under a notification issued under section 93 of the Finance Act, 1994 (32 of 1994) and after directing the said amount from the balance of CENVAT credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any excisable goods, whether cleared for home consumption or for export or for payment of service tax on any other output service, whether provided in India or exported."
From the above sub rule (4), it can be seen that even if an output service provider avail the credit and output service becomes exempted in such case the credit only in respect of inputs lying in stock or is contained in taxable service is required to be paid whereas there is no provision for payment of cenvat credit equivalent to the input services used in respect of exempted service. Therefore, the cenvat credit availed in respect of input service is not required to be paid back under any circumstances.
19. We accordingly hold that the Appellants were not legally required to reverse any Credit which was availed by them during the period 2010 till obtaining Completion Certificate, i.e. during the period when output service was wholly taxable in their hands, merely because later on, some portion of the property was converted into immovable property on account of receipt of Completion Certificate and on which no Service Tax would be paid in future.
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20. It has been rightly pointed out by the Ld. Counsel for the Appellants that in case of "demand of 8%/10%" confirmed vide the impugned orders involved in the present bunch of appeals, the period considered was only after receipt of completion certificate and even penalties are imposed as such. That no demand has been raised under Rule 6 or Rule 14 of the CCR, 04 for period prior to obtaining completion certificate at all, while the Appellants had reversed Cenvat Credit under protest based on CERA objection, for the period 2010 till obtaining Completion certificate on the basis that such input services cannot be wholly said to be used for providing 100% taxable output service.
21. It is the case of the revenue that by demanding 8%/10% amount of sale of immovable property after obtaining Completion Certificate, the credits availed in the past are ipso facto regularized. It should however be appreciated that payment of 8%/10% is only an option or rather a mechanism to seek credit reversal on lump sum basis, where the assesse cannot maintain separate accounts / reverse proportionate credit on turnover basis or in cases were the assessee himself so chooses to follow such option. In other words, it is a substitute to regularise credit instead of accepting proportionate credit availed during the time when output service was exempt. As stated supra, since the credits availed when output service was wholly taxable cannot be called into question, it cannot be said that such 8%/10% amount of sale of immovable property is to regularise not only credits availed after Completion Certificate but also availed during 2010 till the time Completion Certificate was obtained. In that sense, Rule 6 if invoked, can deal with only prospective credits availed after output activity becoming exempt and not credits availed before the output activity become exempt.
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22. As submitted by the Appellants, even CERA authorities, while raising objection and making the Appellants reverse Cenvat Credit availed during 2010 till obtaining of Completion Certificate, adopted the same basis of square feet area which attracted Service Tax as compared to square feet area which was converted into immovable property after receipt of Completion certificate. This basis is therefore, it appears is otherwise acceptable to revenue authorities. It was such basis which was adopted by the Appellants in availing only proportionate Credit after receipt of Completion Certificate.
23. Since we hold that the Appellants are not required to reverse any credit availed by them on valid input services availed during the period 2010 till obtaining of Completion certificate, the said amounts reversed by them under protest cannot be retained by the revenue authorities and have to be returned to the Appellants. The same was appropriated against the demand of 8%/10% of sale of immovable property after obtaining Completion Certificate, under Rule 6 of the CCR, 04 vide the impugned order. That while the Appellants were never required to reverse the same as well as the fact that such demand of 8%/10% itself is not sustainable for the reasons stated hereinabove, since the Appellants had maintained separate accounts anyway, the amounts paid under protest in the past required to be returned to the Appellants in accordance with law.
24. The specific questions framed in this regard therefore have to be answered as follows:
a. For the above reasons, the Appellants are not liable to pay 8%/10% amount of value of service became exempted after receipt of completion certificate under Rule 6 of the CCR, 04. 24 | P a g e ST/11475,11476,10017,10018/2018-
DB b. The Cenvat Credit on input services received after obtaining Completion Certificate cannot be wholly allowed to the Appellant, and since they had availed only proportionate credit by maintaining separate accounts, the same is therefore sufficient compliance of the legal obligation cast upon them. c. The Appellants can be said to have "maintained proper separate accounts" as required under Rule 6 of the CCR, 04, having availed credit only to the extent input services in taxable activity, on the scientific basis after obtaining Completion Certificate.
d. The Appellants are not required to reverse Cenvat Credit availed during the period when output service was wholly taxable before receipt of Completion Certificate, in accordance with law.
e. Connected to (d) above, the Appellants are eligible to seek refund of the amount paid under protest towards Credit availed from 2010 till receipt of completion certificate, based on CERA audit objection wherein such credit was sought to be reversed based on considering square foot area where Service Tax was paid and balance area where Service Tax will not be paid after Completion Certificate, in accordance with law.
25. Since we have already reached to the above conclusion, we are not addressing the issue whether the revenue authorities ought to have raised separate and specific demand under Rule 6 read with Rule 14 of 25 | P a g e ST/11475,11476,10017,10018/2018- DB the CCR, 04 for such amounts paid under protest for the input services availed during the period 2010 till obtaining Completion Certificate. We are also not addressing the issue of bonafide belief and the demand being time-barred in light of the same.
26. The appeals are allowed accordingly, along with consequential relief.
(Pronounced in the open court on 23.10.2018)
(Raju) (Ramesh Nair)
Member (Technical) Member (Judicial)
Neha