ST - utilization of 20% credit - Credit accumulated under Rule 6 does not lapse as no lapsing provision was provided and rule also does not explicitly bar it - in absence of clear legal prohibition, this right cannot be denied - Stay granted: CESTAT
By TIOL News Service
MUMBAI, AUG 14, 2013: VIDE Finance Act, 2007, the scope of telephone service was expanded and the services of any description by means of telecommunication provided to any person was made exigible to service tax. Prior to 01/06/2007 the appellant was rendering services to other telecommunication operators which were commonly known as "Inter Connectivity usage service" for which they were receiving consideration. However, since the other telephone operators were not the subscribers of the appellant, there was no service tax liability. As per CENVAT Credit Rules as they stood at the relevant time, under Rule 6(3)(c), in a situation where the output service provider rendered taxable as well as exempted service and did not maintain separate account of the input services utilised, there was a restriction on availment of CENVAT Credit to the extent of 20% of the amount of service tax payable on taxable output service. Therefore, the appellant was not able to utilize 80% of the input service tax credit prior to 01/06.2007. Consequently, there was accumulation of CENVAT Credit in the books of accounts.
There was, however, no provision in the CENVAT Credit Rules, for lapse of accumulated credit.On 01/06/2007, when the scope of telecommunication service was extended to cover inter-connectivity usage services provided to other telephone operators, the appellant utilised the accumulated credit towards the discharge of service tax liability.
The department was of the view that the appellant could not have utilised the CENVAT Credit as the credit which accumulated prior to 01/06/2007 lapsed. Accordingly, a demand towards wrong utilisation of CENVAT Credit to the extent of Rs.10,84,53,929/- was issued and confirmed against the appellant by the CCE, Thane-I.
Before the CESTAT, the appellant submitted that in a similar situation that arose after amendment of the CCR, 2004 on 01.04.2008, the Board vide Circular No. 137/72/2008-CX. 4 dated 21/11/2008 clarified thus -
"Subject : Utilization of accumulated CENVAT credit restricted in terms of Erstwhile Rule 6 (3) (c) CENVAT Credit Rules, 2004 - reg.
Prior to 1.4.2008 [before the amendment in rule 6 (3)] the option available to the taxpayer, under rule 6(3), was that, he was allowed to utilize credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service. However, there was no restriction in taking CENVAT credit and also there was no provision about the periodic lapse of balance credit. This resulted in accumulation of credit in many cases.
As stated earlier, many taxpayers had accumulated CENVAT credit balance as on 01.04.2008. The matter to be considered was whether this credit balance should be allowed to be utilized for payment of service tax after 01.04.2008.
As no lapsing provision was incorporated and that the existing Rule 6(3) of the CENVAT Credit Rules does not explicitly bar the utilization of the accumulated credit, the department should not deny the utilization of such accumulated CENVAT credit by the taxpayer after 01/04/2008. Further, it must be kept in mind that taking of credit and its utilization is a substantive right of a taxpayer under value added taxation scheme. Therefore, in the absence of a clear legal prohibition, this right cannot be denied.
Pending issues may be decided accordingly."
It is, therefore, submitted that the order passed by the CCE, Thane-I is not sustainable in law.
The Bench observed -
"5.1 On a plain reading of the impugned order, we find that the adjudicating authority has denied the credit on the premise that on 01/06/2007 whatever credit had been accumulated in the books of accounts of the assessee would lapse. On going through the CENVAT Credit Rules, 2004, as they stood at the relevant point of time, we do not find any provision of law to come to such a conclusion. The CBE&C's Circular dated 21/11/2008 also confirms that the accumulated credit would not lapse and Rule 6 (3) does not bar utilisation of accumulated credit and therefore, the department should not deny utilisaiton of the accumulated credit by the assessee after 01/04/2008. The reliance placed by the adjudicating authority on the decision of Ratan Melting & Wire Industries and Gujarat Narmada Fertilizers Co. Ltd. case (cited supra) is also of no relevance to the Revenue's contention. The said decisions pertained to altogether different situations….Therefore, the order of the adjudicating authority is not sustainable in law. Accordingly we are of the considered view that the appellant has made out a strong prima facie case for grant of stay. Accordingly, we grant unconditional waiver from pre-deposit of dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal."
(See 2013-TIOL-1217-CESTAT-MUM)
