Prajapati Developers Versus CCT, Rangareddy – GST
Central Excise
2019 (2) TMI 1361 – CESTAT HYDERABAD – TMI
CESTAT HYDERABAD – AT
Dated:- 14-2-2019
E/30719/2018 – A/30227/2019
Central Excise
Mr. P. Venkata Subba Rao, Member (Technical)
Shri P. Venkat Prasad, Chartered Accountant for the Appellant.
Shri Mir Anwar Mohiuddin, Asst. Commissioner/AR for the Respondent.
ORDER
Per: P.V. Subba Rao.
1. This appeal is filed by the appellant against Order-in-Appeal No. HYD-EXCUS- RRC-APP-225-17-18 (APP-I) dated 26.03.2018.
2. The facts of the case in brief are that the appellant are engaged in construction of residential complexes mainly in Mumbai and also in Hyderabad. They are discharging service tax liability and have been availing CENVAT credit as per CENVAT Credit Rules, 2004. During audit, it was noticed that the appellant had sold some of the flats after obtaining completion certificate in terms of Sec. 65B(44) and such transactions being transactions in im
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ginal authority on the ground that since sale of flats after obtaining completion certificate is not a 'service' under Sec. 65B(44) it is also not an 'exempted service'. Rule 6 of CENVAT Credit Rules, 2004 contemplates only reversal of proportionate amount of credit when the common input service is used both for taxable and exempted services. In this case, they have used input services for taxable services as well as for other activities which do not amount to service at all. Rule 6 of CENVAT Credit Rules, 2004 had no provision during the relevant period for reversal of proportionate amount of CENVAT Credit in such cases. Subsequently notification 13/2016-CE (NT) dated 01.3.2016 was issued, inter alia amending Rule 6(1) of CENVAT Credit Rules, 2004. Through this amendment explanation (3) was inserted in this rule as follows:
“For the purposes of this rule, exempted services as defined in clause (e) of Rule 2 shall include an activity, which is not a service as defined in Sec. 65B (44)
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it Rules, 2004 also and held that once the appellant is not entitled to the credit at all there is no question of they being entitled to the credit of input services. In this case, since the flats which were sold were not services at all any input service used in such a transaction would not entitle them to the benefit of credit under Rule 2(l) and Rule 3 of CENVAT Credit Rules, 2004. Learned CA would argue that this argument in the impugned order is incorrect because they were never issued a show cause notice seeking to deny credit citing Rule 2(l) and Rule 3. They were only issued show cause notice seeking reversal of credit under Rule 6. On specific query from the bench, he would submit that they are entitled to credit of CENVAT because they used the services for provision of taxable services though not exclusively for provision of taxable services. Therefore, the impugned order is incorrect and the same needs to be set aside.
6. Learned departmental representative reiterates the f
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d was to be treated as neither 'service' nor 'exempted service'. On careful consideration of the legal provisions under Rule 2(l), 3 & 6 of CCR, 2004 I find that the decision made by the original authority that basing himself solely on the definition of 'exempted service' under Rule 6 of CCR, 2004 made on 01.04.2016 is ill conceived. The claim of the respondents regarding their entitlement to credit on common input services which were not used in provision of taxable output services is against well-recognized legal principles of CENVAT credit scheme. Credit can be taken only if the final product/output service is taxable. It is intended to mitigate the burden of tax on input/input service used in taxable output services. It is not intended to unjustly enrich any provider of output services. A provider of taxable and exempted services is required to comply with the statutory obligations provided under Rule 6 of CCR, 2004. As provided under Rule 6(1) of CCR, 2004 credit of tax paid shall
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t had the option to maintain separate accounts of such common input services used for provision of taxable and exempted services. In the instant case, respondents had not maintained such records. The demand proposed was on the ground that the credit availed on such common input services used in providing such activity/transaction which was not a 'service' is not admissible. For entitlement to credit of duty/tax allowed under CCR, 2004, existence of a nexus between usage of such inputs/input services and the manufacture of dutiable goods or provision of a taxable service is a must. This is a well recognized legal principle required to be observed while availing credit under the CENVAT credit scheme. Therefore, credit on any service cannot be taken unless there is tax liability arising in connection with its use. If the sale of residential flats after construction and obtaining occupancy certificates is not an output service, there cannot be entitlement to credit of any input service – c
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2(1), 3 and 6(1) of CCR, 2004 which was the same prior to and after the insertion of the subject explanation.”
7. He would therefore argue that the explanation (3) to Rule 6(1) introduced with effect from 01.4.2016 is merely a clarification of the legal position which already existed which was that nobody is entitled to credit of inputs or input services unless they are used for provision of taxable services. Therefore the appeal may be dismissed and the impugned order may be upheld.
8. I have considered the arguments on both sides and perused the records. The show cause notice was issued seeking reversal of CENVAT credit under Rule 6 holding that the input services were used both for provision of taxable services and also for activities which do not amount to service under Sec. 65B(44) of the Finance Act, 1994. Rule 6 required reversal of proportionate amount of CENVAT credit wherever the input services or inputs were used both for provision of taxable as well as exempted services
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edit of the tax paid. This was rectified by insertion of explanation (3) to Rule 6(1) with effect from 01.4.2016 vide notification 13/2016-CE (NT) dated 01.3.2016. This explanation however was not given retrospective application in the notification. I am unable to agree with the learned departmental representative that since this explanation is keeping in line with the spirit of the entire scheme of CENVAT Credit Rules, 2004 that credit is available only when tax is paid, it should be treated as having retrospective application. It is a well settled legal position that taxing statutes should be read as such without any intendment in it regardless of the consequences. It may result in an unfair taxation or an unfair benefit to the tax payer. Either way, the taxing statutes have to be interpreted as they exist regardless of the consequences. Only the Parliament is competent to modify the statutes or the Government which is empowered by the Parliament to make subordinate legislation. The
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