2011 (12) TMI 396 - AT - Service Tax

Court affirms decision on Cenvat credit misuse by BSNL, stresses evidence & penalties for false claims

The court upheld the original authority's decision in a case involving wrong availment of Cenvat Credit for Service Tax on Security Service for Cell Phone ... Wrong availment of Cenvat credit - extended period under the proviso to Section 73(1) - interest under Section 75 - penalty under Section 78 - penalty under Rule 15(3) of the CENVAT Credit Rules, 2004 - Dispute Resolution Scheme 2008 - fraud, misstatement and duplicity - time-barred demandWrong availment of Cenvat credit - extended period under the proviso to Section 73(1) - interest under Section 75 - Dispute Resolution Scheme 2008 - fraud, misstatement and duplicity - Validity of demand of wrongly availed Cenvat credit with interest for the period 1.4.05 to 31.12.06 and applicability of extended period on the ground of false claim of reversal - HELD THAT: - The original authority found that the assessee admitted having not produced documentary evidence of reversal of Cenvat credit of Rs.2,11,899 for security services related to cell phone towers for the period 1.4.05 to 31.12.06, and that the assessee had availed the Dispute Resolution Scheme 2008 by paying only interest while claiming reversal. Subsequent audit verification confirmed that no reversal had been effected. The Tribunal held that such admission and the audit finding demonstrate a false claim and duplicity amounting to fraud or misstatement, thereby justifying invocation of the extended five-year period under the proviso to Section 73(1) and recovery of the wrongly availed credit with interest as prescribed (read with Section 75). The appellate authority erred in treating the demand as time-barred without examining these factual findings. Consequently, the Order-in-Original demanding the wrongly availed credit with interest is restored.Demand for the wrongly availed Cenvat credit for 1.4.05 to 31.12.06 with interest upheld and original order restored.Penalty under Section 78 - penalty under Rule 15(3) of the CENVAT Credit Rules, 2004 - fraud, misstatement and duplicity - Imposition of penalties for wrongful availment and non-keeping of Cenvat accounts, and validity of additional penalty under Rule 15(3) - HELD THAT: - The original authority imposed equal penalty under Section 78 for wrongful availment and held the assessee liable under Section 77 for failure to maintain Cenvat accounts. The Tribunal found that where wrong availment and utilisation of credit arises from fraud, misstatement or duplicity, imposition of an equal amount of penalty under the statute and the CENVAT Credit Rules is justified. The appellate authority's setting aside of the penalty was unwarranted in view of the proved and admitted false claim. However, the Tribunal found no justification for imposing the additional specified penalty under Rule 15(3) and set aside that specific penalty while otherwise restoring the original penalties.Equal penalties under the statute restored; the additional penalty under Rule 15(3) set aside.Final Conclusion: The departmental appeal is allowed: the Order-in-Original demanding the wrongly availed Cenvat credit for 1.4.05 to 31.12.06 with interest and imposing equal penalty is restored; the appellate order holding the demand time-barred is set aside; the additional penalty under Rule 15(3) is set aside. Issues:1. Wrong availment of Cenvat Credit for Service Tax on Security Service received for Cell Phone Towers.2. Failure to provide documentary evidence for reversal of wrongly availed credit.3. Imposition of penalties under Sections 76, 77, and 78 of the Act.4. Request for adjustment of demand from the refund due to the appellant.Analysis:Issue 1: Wrong Availment of Cenvat CreditThe original authority highlighted the issue of wrong availment of Cenvat Credit amounting to Rs.2,11,899 for Service Tax on Security Service received for Cell Phone Towers. It was noted that the service received was not directly related to the services provided by the appellant, leading to the demand for repayment of the wrongly availed credit.Issue 2: Lack of Documentary EvidenceM/s. BSNL claimed to have reversed the wrongly taken credit and participated in the Dispute Resolution Scheme by paying the interest amount demanded. However, subsequent audit revealed the lack of documentary evidence to support this claim, indicating a failure to provide proof of reversal or fresh payment. The inability to produce such evidence raised doubts regarding the initial claim made by M/s. BSNL.Issue 3: Imposition of PenaltiesThe original authority proposed penalties under Sections 76, 77, and 78 of the Act due to the false claim made by M/s. BSNL regarding the reversal of wrongly availed credit. The failure to maintain proper Cenvat Accounts also led to liability for penal action under Section 77 of the Act. The judgment upheld the imposition of penalties under Section 78 but set aside the additional penalty of Rs.2,000, emphasizing the seriousness of the false claim and the need for appropriate penalties.Issue 4: Adjustment of DemandM/s. BSNL requested to adjust the demand from the refund due to them, acknowledging the charges made in the show cause notice. The judgment highlighted the need to consider this adjustment only while issuing an order on their refund claim, indicating a specific process for addressing the financial aspect of the case.In conclusion, the judgment emphasized the importance of substantiating claims with proper documentation, the consequences of making false claims under schemes, and the justification for imposing penalties in cases of fraud or misstatement. The decision highlighted the responsibility of public sector undertakings to uphold transparency and accuracy in financial matters, ultimately upholding the original authority's decision on the case.