Tribunal Clarifies Reversal Formula for CENVAT Credits; Exempted Services Alone to be Considered
In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Chennai Regional Bench has delivered a favorable judgment for M/s. Sify Technologies Ltd. in their appeal against the Commissioner of GST & Central Excise. The tribunal set aside the demand for reversal of CENVAT credits, emphasizing that only credits attributable to exempted services need to be reversed, rather than those exclusively attributable to taxable services.
The appeal, filed under Service Tax Appeal No.41180 of 2016, challenged a previous order demanding Rs.13,36,742/- for alleged improper credit utilization. The tribunal clarified that under Rule 6(3A) of the CENVAT Credit Rules, 2004, the calculation should focus solely on credits related to common input services used for both taxable and exempted services, not those exclusively for taxable services.
The judgment follows a remand direction issued in January 2016, where the tribunal asked the adjudicating authority to reassess the allocation of credit for common input services. Sify Technologies argued that reversing credits for taxable services would contradict the intended relief under Rule 6(3) (ii), which aims to only reverse credits associated with exempted services.
The tribunal's decision aligns with precedents set by the Ahmedabad Bench in the case of CCE & ST Rajkot v. Reliance Industries Ltd., which was affirmed by the Gujarat High Court. The ruling underscores the importance of precise credit allocation, preventing unnecessary reversal of credits meant for taxable services.
With this judgment, Sify Technologies is entitled to consequential benefits, marking a significant win for entities navigating the complexities of CENVAT credit regulations.
Bottom Line:
CENVAT credit reversal under Rule 6(3A) of the CENVAT Credit Rules, 2004 - Credit attributable to the provision of exempted services alone should be considered for reversal, and not the credit exclusively attributable to taxable services.
Statutory provision(s): Rule 6(3A) of the CENVAT Credit Rules, 2004; Section 73(1) of the Finance Act, 1994.
