ORDER
T.V. Sairam, Member (T)
1. This is a stay application filed along with an appeal challenging the order of the Commissioner of Customs and Central Excise, Meerut-I dated 31.1.2007. In the impugned order, the Commissioner has confirmed the demand of cenvat credit against the appellant a la foi dropping the demand of cenvat credit made under the show cause notice for the various reasons, detailed thereunder.
2. The appellants are registered with the Service Tax authorities at Meerut for providing telephone services and admittedly have been filing ST-3 returns with the department. The dispute is with regard to availment of cenvat credit which has culminated into the total demand of Rs. 2,60,27,342/- besides and imposition of a penalty on the appellants to the tune of Rs. 50,10,000/-.
3. For convenience sake the demand raised could be covered under the following three categories:
(1) Demand raised on the ground that the capital goods were received prior to 10.9.2004-Rs. 70,50,003/-;
(2) Demand raised on the ground that input services were received by the appellants prior to 10.9.2004 -Rs. 11,39,593/- and
(3) Demand raised on the ground that under Rule 6(3)(c), the appellants can utilized only 20% of the credit taken -Rs. 1,78,37,146/-.
4. The learned Counsel for the appellants spells out the following arguments:
(1) Sub-rules (1)(2) and (3) of Rule 6 of Cenvat Credit Rules, 2004 are exclusively carved out in respect of availing credit on inputs or input services and not in respect of capital goods.
(2) As regards the availment of credit in respect of capital goods, the provisions are in Rule 6(4) of the said Rules. The restrictive utilization of credit is envisaged only under Rule 6(3)(c) which pertains to input services and not under Rule 6(4) which deals with capital goods. It is, therefore, evident that such restrictions of utilization of credit are not there in respect of credit taken on capital goods.
(3) Services of international roamers cannot be treated as exempted services in view of the fact that during the relevant period though the service tax was payable, there was a practice of nonpayment/non-recovery of the same and only on a later date this anomaly was addressed by the Government of India by issue of a Notification (36/2007-ST dated 15.6.2007) under the provisions of Section 11C of Central Excise Act, 1944 read with Section 83 of the Finance Act. Under this notification the Central Government itself is shown to be satisfied that such a practice was prevalent. The notification is based on the footing that such services or taxable service and were liable to service tax under Sub-clause (b) of Clause (105) of Section 65 of the Finance Act.
(4) Rule 6(5) accommodates the credit taken in respect of input services which has been disputed in the impugned order. A plain reading of Rule 6(5) is as under:
6(5) Notwithstanding anything contained in Sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in Sub-clauses (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of Clause (105) of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services.
The taxable service specified thereunder is eligible for taking credit of the whole of service tax and hence the restricted utilization of credit to the tune of 20% as contemplated in the impugned order is bad in law as the provision itself is not applicable for the capital goods utilized by the appellants.
(5) The credit availed by the appellants with regard to capital goods during April 2004 and September 2004 was actually availed after 10.9.2004. According to the appellant, such goods are received by them after 10.9.2004 and hence the duty demanded thereunder (Rs. 70,50,603/-) is not legal and proper.
(6) The conclusion reached by the Commissioner vide para 12.3 of the impugned order whether credit on input service received before 10.9.2004, but not consumed in output service before 10.9.2004 for providing output service was admissible to them was wrong particularly in terms of the transitional provisions under Rule 11 of the Rules. (According to the appellants, these services were received prior to 10.9.2004 and, therefore, they had very much “earned” the credit in respect of such services).
(7) The services of international roamers has to be considered as export of services since the foreign parties have purchased the same from the appellants. Annexure 13 to the present appeal would indicate details of services utilized by the appellants between October 2004 and March 2005 whose total value comes to Rs. 2,22,96,432/-. The said annexure indicates the nature of the break-up of the credit, which goes to show that approximately a sum of Rs. 44,59,286/-would work out to be the credit covered under Rule 6(3)(c). Out of this a sum of Rs. 8,91,857/- would be utilized as a credit, as stated by the learned Counsel so that the balance amount of Rs. 35,67,429/- which could be the amount which may be required to be paid in cash.
5. The learned authorized representative of the Department reiterates the reasoning and findings of the Commissioner. As regards the credit of capital goods, he contended that the dates of invoice relate to a period prior to 10.9.2004 in respect of goods received by them before 10.9.2004. As a reply to this contention the learned Counsel referred to Annexure 14 of the appeal which contains details of capital goods along with bill of entry to demonstrate that the date of invoices received by the appellants are only after 11.9.2004.
5.1. According to the learned authorized representative of the department, the appellants have not produced any evidence that input service was consumed by them in relation to the output services prior to 10.9.2004, although all invoices relating to input services are anterior-dated.
5.2 The learned authorized representative of the Department refers to the findings of the Commissioner frozen in para 13 of the impugned order:
13. Besides above points, it has also been alleged in the show cause notice dated 21.04.2006 that since party is providing exempted services also therefore Cenvat credit can be utilized merely to an extent of 20% of the output Service Tax liability. On the basis of party’s letter dated 24.03.2006 it has been concluded that they provide exempted services also and do not maintain separate records as required under Rule 6 of the Cenvat Credit Rules, 2004. On the basis of returns filed by the party for the period April, 2004 to March, 2005 the total Service Tax liability including education cess has been worked out to the tune of Rs. 2,22,96,432/- which have been paid by them from the Cenvat credit. Since as per Show Cause Notice dated 21.04.2006 only 20% of the amount which works out to be Rs. 44,59,286/- only was admissible to them, therefore, it was alleged that party have wrongly availed Cenvat Credit amounting to Rs. 1,78,37,146/- towards payment of Service Tax which was not admissible to them and should have been paid on TR-6 challans.
5.3 It was also contended by the learned authorized representative that the appellants were providing exempted services also and hence cenvat credit can be utilized by them to an extent of 20% of the output service tax liability. In view of this, it was concluded on the basis of the returns filed by the party that out of Rs. 2,22,96,432/- Rs. 44,59,296/- was admissible to them and as a result the appellants had wrongly availed Rs. 1,78,37,146/- towards payment of service tax, which was not admissible to them.
6. The learned authorized representative of the department further draws our attention to Notification No. 21/2003-ST dated 20.11.2003, which exempts taxable service specified in Sub-section (105) of Section 65 of the Finance Act, 1994, provided to any person in respect of which payment is received in India in convertible foreign exchange from the whole of service tax leviable thereon. It was argued that even though the services rendered by the appellants remained as “taxable service” at the relevant point of time, by virtue of this notification such services rendered by the appellant in respect of which payment was received by them in India in convertible foreign exchange would stand exempted and hence it is obvious that the appellants had been rendering services both exempted as well as taxable i.e. “exempted” in the form of services of international roaming and “taxable” in the form of telephone services provided by them to their customers. According to him, as per Rule 6(3)(c) 20% bar is applicable in their case and the remaining 80% has to be paid in cash in terms of the said provisions.
7. We have heard both sides and examined the record. We find that the provisions under Rule 6 are crystal clear inasmuch as its Sub-rules (1), (2) and (3) cannot be mixed up with Sub-rule (4), which has precisely happened in the subject case. By mixing up the provisions of Rule 6(3)(c) and applying the same on the provisions relating to Sub-rule (4) of Rule 6 which deals with capital goods, huge demand has been raised against the appellants. At the same time, we observe that during the relevant period, there has been certain uncertainty about payment/recovery of service tax, which has culminated into issuing of Notification No. 36/07 dated 15.6.2007 in exercise of the powers conferred under Section 11AC of the Act, 1944 read with Section 83 of the Finance Act. Incidentally, we find that the said notification had not taken its birth when the impugned order was passed by the learned Commissioner. Though one view could be taken that the services of international roamers was taxable during the relevant period, the fact that Notification No. 21/2003 dated 20.11.2003 exists cannot be ignored. The latter notification exempted the taxable services rendered by the appellants has not been disputed. This would mean that in addition to taxable services the appellants had also rendered exempted services during the relevant period. However, strong contention made by the learned Counsel of the appellants that the credit taken by them in respect of capital goods cannot fall under the restrictive utilization pattern as laid down under Rule 6(3)(c) has not been disputed by the Revenue. In the facts and circumstances of the matter, we direct the applicants to make a pre-deposit of Rs. 40 lacs (Rupees forty lacs only) in cash/PLA within eight weeks from today, failing which the appeal shall stand dismissed. On depositing the said amount the remaining amount of tax and penalty demanded under the impugned order shall stand waived. The matter to come up for compliance on 3.9.2007. The application stands disposed of accordingly.