2012 (12) TMI 642 - AT - Service Tax

Tribunal Upholds Denial of Cenvat Credit: Emphasizes Record-Keeping for Avoiding Penalties

The tribunal upheld the denial of cenvat credit on trading activity due to the failure to maintain separate records, confirming the demand with interest ... Non payment of service tax to the government - invoking extended period of limitation - Held that:- Assessee cannot escape the responsibility of ensuring that records are maintained in accordance with law and credits are availed and utilized properly. He did not made effort to find out even at any stage as to whether the service providers were in existence and whether they had paid service tax collected from them to the government. Thus failure on part of appellant proved the invocation of extended time limit for demand in this case is sustainable. Further, for the same reasons, the first appellant is liable to penalty also. Cenvat credit - denial as services used for both exempted and non exempted goods - Held that:- Admittedly the first appellant was engaged in the manufacture of animal feed which is exempted and was also engaged in trading activity & was obliged by law to maintain separate records failing which reverse the credit relatable to the trading activity. In fact there is no proposal for demanding 8%/10% on the exempted goods and therefore one has to take it that it is their case that the demand is on the ground that appellant was engaged in the manufacture of excisable goods and trading of other goods. Once the assessee is considered to be aware of statutory provisions relating to availment of credit and his activities, the normal conclusion of a ordinary prudent person is that the assessee had deliberately avoided reversing the credit attributable to trading activity and thereby suppressing/mis-declaring the fact of availment of credit to the department. Therefore the conclusions of the lower authorities to confirm the demand with interest and imposition of penalty has to be upheld - appeal filed by the first appellant has no merits and accordingly is rejected. Penalty on second appellant – Held that:- Shri Javed Shaikh, second appellant being an employee cannot be said that he derived any extra benefit because of the lapses it has not been shown that there was any motive on his part. Since penalty has been imposed on the first appellant penalty imposed on is set aside. Issues:1. Availment of credit on service tax paid to non-existent service providers.2. Cenvat credit availed on telephone services and other services without maintaining separate records.3. Penalty imposed on the production officer.4. Denial of cenvat credit on trading activity.5. Imposition of penalty on the first appellant.Issue 1: Availment of credit on service tax paid to non-existent service providers:The case involved M/s. Lacto Cosmetics (Vapi) Pvt. Ltd. availing credit of service tax paid on manpower supply and security services from non-existent service providers. The audit revealed discrepancies where service tax was charged but not paid to the government by the service providers. The appellants claimed they were unaware of the fraud and believed the service tax was being paid. The department argued that the appellants should have verified the service providers' existence and payment of service tax. The tribunal upheld the extended period for demanding the credit, citing the appellants' lack of verification efforts and failure to reverse the credit after the service providers disappeared.Issue 2: Cenvat credit availed without maintaining separate records:The first appellant availed cenvat credit on services used for both exempted and non-exempted goods without maintaining separate records. The tribunal noted the obligation to maintain separate records for trading activities and exempted goods. The appellants failed to reverse the credit attributable to trading activity, leading to the denial of proportionate credit. The tribunal upheld the demand for the denied credit, citing the appellants' awareness of the inadmissibility of credit for trading activity.Issue 3: Penalty imposed on the production officer:The production officer, Shri Javed Shaikh, faced a penalty for his involvement in the case. The appellants argued that Shaikh was unaware of the fraud and merely followed directions. The tribunal set aside the penalty on Shaikh, considering him an employee without evidence of deliberate contravention, especially since a penalty was imposed on the first appellant.Issue 4: Denial of cenvat credit on trading activity:The denial of cenvat credit was based on the failure to maintain separate records for trading activities. The tribunal upheld the denial, emphasizing the responsibility of the assessee to assess and pay taxes correctly. The failure to reverse credit for trading activity indicated a deliberate attempt to suppress facts, leading to the confirmation of the demand with interest and penalty.Issue 5: Imposition of penalty on the first appellant:The tribunal rejected the appeal filed by the first appellant, upholding the demand for denied cenvat credit and penalty. However, the penalty imposed on Shri Javed Shaikh was set aside due to lack of evidence of deliberate contravention. The decision cited regarding extended period and other issues was deemed inapplicable to this case.In conclusion, the tribunal ruled against the first appellant on the issues of credit availed from non-existent service providers and denial of cenvat credit on trading activity. The penalty on the production officer was set aside, while the penalty on the first appellant was upheld. The decision highlighted the importance of maintaining accurate records and verifying service providers to avoid penalties and demands for denied credits.