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Sharp Business Systems India Ltd V/S Commissioner of Service Tax, New Delhi

    Service Tax Appeal No. 3509 of 2012 (Arising out of Order-in-Original Nos. 135-137/ ST/PKJ/CCE/ADJ/2012 dated 8.8.2012 passed by the Commissioner of Central Excise, New Delhi) and Final Order No. 54384 /2017

    Decided On, 22 June 2017

    At, Customs Excise Service Tax Appellate Tribunal Principal Bench New Delhi

    By, THE HONORABLE JUSTICE: DR. D.M. MISRA
    By, MEMBER AND THE HONORABLE JUSTICE: ASHOK K. ARYA
    By, MEMBER

    For Petitioner: Manish Gour, Advocate And For Respondents: Sanjay Jain, DR



Judgment Text


1. This is an appeal filed against order in original No. 135-137/ST/PKJ/CCE/ADJ/2012 dated 8.8.2012 passed by Commissioner of Central Excise, New Delhi.

2. Briefly stated the facts of the case are that the appellant is a provider of Taxable services under the category of 'maintenance and repair service' and 'Business support service'. They are registered with the department and discharged service tax under the said category. The appellants are also engaged in trading of imported equipments, parts and accessories etc. under the brand name 'Sharp'; the same equipments are also used in providing repair and maintenance services. Alleging that since the appellant is engaged in trading activity, an exempted service, show cause notice was issued for recovery of cenvat credit of Rs. 51,01,636/- for availing and utilizing the cenvat credit on input services namely, warehousing service and cargo handling services. On adjudication, demand was confirmed with interest and equal amount of penalty and penalties under other provisions of Finance Act, 1994. Hence, the present appeal.

3. The learned advocate for the appellant submitted that in providing taxable services, namely repair and maintenance services, they had discharged service tax on the entire value without seeking any abatement as admissible under the said category of taxable service. For the purpose of rendering repair and maintenance services, the imported spare parts, accessories etc. are used and also the said spare parts, accessories etc. are sold by them, as it is, in the market. In undertaking the repair and maintenance service and also trading activity, they use warehousing and cargo handling service on which cenvat credit have been availed. It is his contention that since the input services were used for taxable as well as exempted services, during the relevant period, the condition contained under Rule 6(3)(c) of the Cenvat Credit Rules, only restricting the utilization of credit to the extent of 20% of the amount of service tax payable by them. It is his contention that there was no other condition stipulated under the said Rule restricting them to avail cenvat credit on input services utilized in providing taxable as well as exempted services. The learned advocate vehemently argued that the adjudicating authority erred in observing that since the input services were used both in taxable as well as exempted services, the cenvat credit on the input services was not available to them. It is his further contention that during the relevant period, they have not utilized cenvat credit more than 20% of the amount of service tax payable on the taxable output services i.e. repair and maintenance service.

4. Learned AR for the Revenue reiterates the finding of the learned Commissioner.

5. We find that undisputedly, the appellant at the relevant time i.e. April, 2004 to March, 2008 imported spares, equipments and accessories, etc. which were utilized by them in providing taxable service, namely, repair and maintenance service; also they have sold the said spare parts and accessories etc. in the open market. The demand notice was issued to recover Cenvat credit availed on input services, namely warehousing and cargo handling services that were utilized both in providing taxable service as well as exempted service i.e. trading activity. The argument of the appellant is that at the relevant point of time, there was no restriction on availment of cenvat credit but the restriction was placed on utilization of cenvat credit on input services availed in providing taxable and exempted services. Before analyzing the rival contentions, it is necessary to read relevant provisions as was in force during the relevant time:-

"(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer or the provider of output service, opting not to maintain separate accounts, shall follow either of the following conditions, as applicable to him, namely:-

(a) ... .....

(b) ... .....

(c) The provider of output service shall utilize credit only to the extent of an amount not exceeding twenty per cent of the amount of service tax payable on the taxable output service.

Explanation I. - the amount mentioned in conditions (a) and (b) shall be paid by the manufacturer or provider of output service by debiting the Cenvat Credit or otherwise.

Explanation II. - If the manufacturer or provider of output service fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 14, for recovery of CENVAT credit wrongly taken;"

6. A plain reading of the aforesaid provision reveals that the restriction placed was on utilization of cenvat credit, rather than availment of cenvat credit when input services were used in providing taxable as well as exempted

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services. The contention of the appellant that during the relevant period, they have not exceeded the said limit of 20% needs scrutiny. Thus, for the limited purpose of verification of the fact that whether they had complied with the provisions of Rule 6(3)(c) of Cenvat Credit Rules, 2004, by utilizing the credit to the extent of 20% of service tax paid, the matter is remanded to the adjudicating authority. The impugned order is modified to the extent and appeal is allowed by way of remand to the extent as mentioned above. Appeal disposed of.
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