The Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax department cannot force 6% payment on value of exempted products when opted to reverse proportionate credit of exempted service.
The bench of P.K. Choudhary (Judicial Member) has observed that the Department ought to have taken note of the fact that the Appellant has exercised the option. The Department cannot force the assessee to pay 5% or 6% of the value of exempted services when the assessee has exercised the option of reversing the proportionate Credit.
The Appellant/assessee is in the business of providing “Health Club and Fitness Services” and “Beauty Parlour Services”. Apart from the Health Club and Fitness Services and Beauty Parlour Services, VLCC Healthcare Ltd. is also engaged in selling the cosmetic products to its customers. During the course of Audit for the period from April 2016 to June 2017, it was observed that the Appellant had claimed a total CENVAT credit of Countervailing duty (CVD) on the strength of invoices issued by the Gurgaon Head Office which is duly registered under the service tax laws as Input Service Distributor.
It was alleged by the audit team that the Appellant had not reversed the proportionate amount of common CENVAT Credit as is attributable to the trading of the goods i.e. exempted services.
A Show Cause Notice was issued demanding a deposit. SCN also demanded reversal of CENVAT Credit amounting to Rs.95,007/- under Rule 6(3) of the CENVAT Credit Rules, 2004. After following the due process of law, SCN was adjudicated.
The Adjudicating Authority dropped the demand in respect of CENVAT credit. However, demand was confirmed under Rule 6(3) of the CCR, 2004 alongwith applicable interest and penalty of equal amount was imposed under Rule 15(2) of the CCR, 2004 read with Section 78 of the Finance Act, 1994. The assessee filed an appeal before the First Appellate Authority who rejected the appeal before him and upheld the adjudication order.
The Appellant contended that the Appellant has been maintaining separate books of accounts as prescribed under Rule 6(2) of the CCR, 2004 for CENVAT Credit exclusively used for taxable and exempted services i.e. trading of goods. Any amount of CENVAT Credit on input or input services that is directly attributable to the trading of goods is not availed by the Appellant. The Appellant has been duly reversing the proportionate amount of credit computed in terms of Rule 6(3A) of the CCR, 2004. Both the Lower Authorities have failed to acknowledge that the value of exempted services in the case of ‘trading of goods’ has to be taken in terms of Rule 6 of the CENVAT Credit Rules, 2004 inserted vide Finance Act 2011 w.e.f. 01.04.2011. The value of exempted services for the purpose of Rule 6(3A) shall be the original value i.e. the difference between the sale price and cost price of the goods sold or 10% of cost price, whichever is more. The Appellant has considered the marginal value, it being more than 10% of the cost price and computed the value of exempted service.
The department contended that though the Appellant have contended that they have maintained separate accounts for inputs used for providing taxable services as well as exempted services, they have not furnished any such materials or documents to prove their contention. The Appellant has not been maintaining separate accounts. IThe Appellant has not exercised any option provided under Rule 6(3A) in which it was stated that the jurisdictional Officer has to be intimated about the exercise of the option to reverse proportionate Credit. Therefore, they are liable to pay 6% of the value of exempted goods. The confirmation of demand, interest and imposition of penalties are therefore legal and proper.
The Department alleges that since the Appellant has not maintained separate accounts, they have to pay an amount equal to 6% of the value of their exempted clearances for the reason that they have not intimated the Department about exercising the option.
Rule 6(3A) provides for intimating the Department by issuing a letter as to the exercise of option of reversal of proportionate Credit.
The issue raised was whether the Appellant is liable to pay an amount equal to 6% of the value of the exempted products when they have opted to reverse the proportionate credit in respect of the trading activity (exempted service).
The tribunal while allowing the appeal held that the requirement of maintaining separate accounts is only procedural in nature and the substantive benefit cannot be denied on grounds.
Case Title: M/s VLCC Healthcare Ltd. Versus Commissioner, CGST, Allahabad
Case No.: Service Tax Appeal No.70433 of 2021
Date: 04.09.2024
Counsel For Appellant: Abhinav Kalra
Counsel For Respondent: A.K. Choudhary
