2012 (12) TMI 642 - AT - Service Tax

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

Lacto Cosmetics (VAPI) (P.) Ltd. Versus Commissioner of Central Excise. Daman

Lacto Cosmetics (VAPI) (P.) Ltd. Versus Commissioner of Central Excise. Daman - [2012] 37 STT 559 (Ahmd. - CESTAT), 2013 (30) S.T.R. 107 (Tri. - Ahmd.) , ... 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.