NBFC Credit entitlement upheld in Service tax regime

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a Non-Banking Financial Company (NBFC) availing the special reversal mechanism under Rule 6(3B) of the CENVAT Credit Rules, 2004 cannot be denied CENVAT credit on common input services merely because a portion of such services is attributable to exempt activities or activities on which service tax is discharged by the recipient under the reverse charge mechanism. 

The Tribunal ruled that Rule 6(3B), which begins with a non-obstante clause, overrides the restrictions contained in Rule 6(1), 6(2) and 6(3), and therefore an NBFC complying with the statutory requirement of reversing 50% of the credit is entitled to retain the balance credit. The demand, interest and penalty were consequently set aside.