[2016] 66 taxmann.com 244 (Chennai-CESTAT) – Sify Technologies Ltd. vs. Commissioner of Service Tax, LTU, Chennai.

Facts
Appellant had 3 types of departments namely Department A (providing taxable services), Department B (providing exempt services) & Department C (administrative department). The Appellant apportioned input service tax credit earned by Department C, between Departments A & B in the ratio of their respective turnover. It was submitted that when the records clearly demarcated the extent of credit allocable the credit cannot be disallowed without bringing any cogent evidence to demonstrate that those services were not relevant. Whereas department contended that once the assessee comes under Rule 6(2) of CENVAT Credit Rules, the application of Rule 6(2) and 6(3) simultaneously is not possible. As assessee failed to comply with the conditions prescribed by Rule 6(3) read with Rule 6(3A) of CENVAT Credit Rules, the entire CENVAT credit was disallowed.

Held
The Tribunal observed that the Appellant had already reversed credit allocated to Department B which provided exempt services. It held that Rule 6(3) of CENVAT Credit Rules contains overriding provisions which are independent of provisions of Rule 6(1) and (2). Since proper records were maintained which enabled substantial allocation of CENVAT credit in respect of taxable as well as exempt services, its case would get covered under Rule 6(2). Therefore, there cannot be a presumption by the Revenue that such method falls under Rule 6(3) of CENVAT Credit Rules. Accordingly, the matter was remanded to adjudicating authority to a limited extent to examine allocation of the credit received by Department A through Department C.