Rules cannot be interpreted in such a way so as to make them nullity
THE respondents are rendering taxable service such as Beauty Parlour Services, Health Club and Fitness Centre Service, Internet Cafe, Dry Cleaning and Mandap Keeper Services. They were also rendering exempted/non-taxable services such as hotel accommodation, restaurant and bar services. The appellant availed CENVAT credit of service tax paid on certain input services which were utilised both in respect of taxable services and exempted services as per Rule 6 (5) of the CCR, 2004.
The Rule 6(5) read thus -
“(5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services.”
The Revenue authorities harboured a view that the said rule permits only taking of the credit in respect of input services and not utilisation thereof whereas the respondent in the present case has utilised it.
So started the cat and mouse game. The adjudicating authority confirmed the demand in excess of Rs.40 lakhs with the usual penalty and interest. However, the Commissioner(A) held that once the appellants are allowed to take credit the same would include utilisation of the credit also.
Since the order was set aside, the Revenue has taken its revolutionary views in appeal to the higher level.
The CESTAT observed –
“6. …The purpose and objective of CENVAT credit Rules it to allow a manufacturer/output service provider not only to take the credit but also to utilize the same for the purposes specified in the said Rules. The respondents herein are output service providers who discharge service tax liability. Therefore, if they are allowed only to take credit and not to utilize the same, the objective of the CENVAT Credit Rules cannot be achieved. There is no reason for interpreting the term “allow” in a narrow and restrictive manner as urged by the Revenue. The said interpretation urged by the Revenue defeats the object and purpose of the CENVAT Credit Rules. Rules cannot be interpreted in such a way so as to make them nullity.”
The Revenue appeal was dismissed.