By Puloma Dalal, Jayesh Gogri, Mandar Telang; Chartered Accountants
fiogf49gjkf0d
II Tribunal
Service tax paid on common input services used for providing services in the State of Jammu and Kashmir and other parts of India is fully available as CENVAT credit. Further for the period prior to April 2011 group insurance services availed for the benefit of employees is an eligible input service.
Facts
The Appellant availed CENVAT credit on input services used for providing output services in the State of Jammu and Kashmir and other parts of India. The department observed that since the Finance Act, 1994 is not applicable to Jammu and Kashmir the services rendered in that state are exempted services and therefore since separate accounts are not maintained as per Rule 6(2) of the CENVAT Credit Rules 2004 for providing taxable and exempted services, credit reversal is required on the common input services in terms of Rule 6(3)(ii) read with Rule 6(3A)(b)(iii) of the said rules. Further reversal is also sought for the service tax paid on the insurance premium paid for the family members of the employees for the period prior to April 2011.
Held
The Tribunal noted that undisputedly common input services have been used for providing services to Jammu and Kashmir and other parts of India. As per Rule 2(e) of the CENVAT Credit Rules, 2004 a service becomes exempted when it is exempted by notification or law. Since the services provided in Jammu and Kashmir are not liable to service tax u/s. 64 of Chapter V of the Finance Act, 1994, these services are neither taxable nor exempted. Further the proviso to sub-clause (2) of Rule 1 of the CENVAT Credit Rules, 2004 clearly states “nothing contained in these rules relating to availment and utilization of credit of service tax shall apply to the State of Jammu and Kashmir”. Thus reversal of credit on input services used for providing service in State of Jammu and Kashmir is justified. However in respect of common input services the Tribunal observed that though it is doubtful as to whether such services can be construed as “output services” in any case the service cannot be construed as an exempted service. It is a non-taxable service. Rule 6(2) does not apply to a situation where the service provider renders both taxable and non-taxable services and the law is silent in this regard. Therefore it was held that reversal of credit on common input services is unsustainable. With regard to credit of service tax paid on insurance premium it was noted that the premium is uniform to all employees and has no regard to the number of dependents and therefore service availed for the benefit of employees qualifies as input service.
