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Oil and Natural Gas Corporation Limited Vs. CCE & ST, Meerut-I - (Customs, Excise and Service Tax Appellate Tribunal) (22 May 2018)

Once cenvat credit has been availed in respect of input services, same cannot be disallowed by taking recourse to any thumb Rule or formula


Service Tax

The Appellant was availing cenvat credit under Cenvat Credit Rules, 2004 and, during the period under dispute, availed a total credit of about Rs. 4.48 crores. The Department, during the course of audit of the Appellant's accounts, observed that during the period under dispute the Appellant had incurred a total expenditure on the Institute to the tune of Rs. 1671 crore. But the total taxable value provided was about Rs. 19.74 crore but paid Service tax of about Rs. 2.09 crore. The Audit team observed that, the bulk of the Service tax paid is out of cenvat credit.

Show cause notice was issued to the Appellant alleging that, Service Tax was irregularly availed by the appellant. The Department was of the view that, major portion of the input service was being used for their own organisation and only a very small portion in providing of output taxable service to other service recipients. In the show cause notice, the Revenue adopted a ratio of their output taxable service divided by total expenditure incurred during the year and proceeded to restrict the cenvat credit availed alleged on the basis of the said formula. Accordingly, show cause notice proceeded to disallow a total cenvat credit amounting to Rs. 4.42 crore. The Revenue also alleged suppression of facts on the part of the Appellant and invoked the extended time limit for raising demand. Proceedings were initiated against the Appellant and the impugned order came to be passed in which the adjudicating authority disallowed. Further, penalty was imposed on various grounds of the Finance Act, 1994.

Any service which is used by the provider of taxable service for providing output service is allowable. The Revenue has not brought on record any ground to allege that the credit availed is in respect of ineligible input services. In the absence of any such ground, the cenvat credit availed cannot be denied to the Appellant. The circumstances in which the cenvat credit availed can be restricted or reversed is also specifically spelt out in the Cenvat Credit Rules, 2004. The restriction/reversal of cenvat credit on the basis of the thumb rule/formula adopted by the Revenue has no legal basis. Once the cenvat credit has been availed in respect of input services falling under Rule 2(1), the same cannot be disallowed by taking recourse to any thumb Rule or formula.

The adjudicating authority has held that, the KDMIPE is a Division of ONGC who also renders service to other ONGC Divisions. In respect of such services no service tax is paid and hence the restriction of cenvat credit has been ordered. There is no basis for the stand taken by Revenue. The service, if any, rendered to other ONGC Divisions is in the form of service to self and levy of Service Tax is not justified.

With effect from 1st April, 2016 in Rule 6(1) of the Cenvat Credit Rules stand amended by including Explanation (iii) but such amendment cannot be extended to the prior period. During the course of argument, the Appellant has conceded the demand in respect of Rs. 1.24 lakh as well as Rs. 33,000, the same is upheld as not contested. The impugned order is set aside except the demand admitted as above. The appeal disposed off.


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