SSI Units Eligible for Credit of Service Tax during exemption period?
CAN a small scale unit availing exemption under Notification No 8/2003 CE dated 1.3.2003 take CENVAT Credit on input services?
As per Notification No 8/2003 CE, the manufacturer shall not avail the credit of duty on inputs under rule 3 or rule 11 of the CENVAT Credit Rules, 2002 (herein after referred to as the said rules), paid on inputs used in the manufacture of the specified goods cleared for home consumption, the aggregate value of first clearances of which, as calculated in the manner specified in the said Table does not exceed rupees one hundred and fifty lakhs …
This notification bars taking of credit on inputs and not on input services. Does Rule 6 of the CENVAT Credit Rules apply?
This question was before the CESTAT way back in 2009 (2010-TIOL-200-CESTAT-AHM). The Tribunal observed,
1. This Rule comes into effect and can be applied only when the assessee is engaged in manufacture of dutiable and exempted goods or as provider of dutiable and exempted services.
2. In this case, Notification specifically provides for denial of credit of duty paid on inputs, but does not provide for denial of cenvat credit on input service.
3. It has to be noted that in respect of capital goods also, the credit is allowed even during the period of exemption to SSI Manufacturers and this is because Notification does not provide for denial of cenvat credit on capital goods.
4. Therefore, it is obvious that if the intention was to deny the benefit of cenvat credit of service tax paid on input services to the assessee availing SSI exemption, input services would have been specifically excluded, as in the case of inputs.
5. Since the Exemption Notification does not put such conditions, the appellants are eligible for the cenvat credit of service tax paid on inputs services.
The same issue came up again before the Tribunal. In this case the Commissioner had observed, "logically when credit is not available on inputs, it is not available on input services also under the Notification." The Tribunal Member observed, "I am not able to appreciate and understand from where the logic comes." And stay was granted. ( ). Interestingly, it was the same Member in both the cases and in this case the party had not relied on the previous reported decision.