Appellant denied service tax credit on transportation; directed to pay central excise duty in cash

The court held that the appellant was not entitled to service tax credit on inward transportation due to manufacturing exempted products. The appellant agreed to pay the service tax on outward transportation in cash and have the wrongly availed credit debited back. Penalties were set aside as there was no malicious intent, with the judge noting the appellant's lack of awareness rather than intentional wrongdoing. The appellant was directed to pay central excise duty for outward transportation in cash and receive a debit entry for the credit availed on inward transportation.

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Issues:
1. Appellant availed input service tax credit for transport services.
2. Revenue denied service tax credit on inward transportation.
3. Appellant utilized the credit for outward transportation.
4. Proceedings initiated for denial of credit, interest, and penalties.
5. Appeal against denial of credit and imposition of penalties.
6. Interpretation of provisions of law regarding service tax credit.
7. Appellant's readiness to pay service tax on outward transportation.
8. Dispute over imposition of penalties for the appellant's actions.

Analysis:
1. The appellant, engaged in manufacturing exempted products, availed input service tax credit for transport services used to bring raw materials to the factory premises. The appellant utilized this credit for the outward transportation of the final product, which required service tax payment.

2. The Revenue contended that since the final product was exempted, the appellant was not entitled to the service tax credit on inward transportation. Proceedings were initiated against the appellant for denial of credit, resulting in an order denying the credit, confirming service tax on outward transportation, and imposing penalties.

3. The appellant's representative acknowledged that they were not entitled to the credit on inward transportation. They agreed to pay the service tax on outward transportation in cash, with the already paid service tax through credit being credited back to the Cenvat account.

4. The appellant argued that their actions were based on an interpretation of the law, and there was no malicious intent. The Revenue argued that using wrongly availed credit for service tax payment should attract penalties.

5. After considering both sides' arguments, the judge held that the appellant was not entitled to the credit. The appellant was directed to pay the central excise duty in cash for the outward transportation and receive a debit entry for the credit availed on inward transportation.

6. Regarding penalties, the judge agreed with the appellant's representative that there was no malafide intention. The appellant had correctly declared all facts in their returns, indicating a lack of awareness rather than intentional wrongdoing. Therefore, the imposition of penalties was set aside.

7. The appeal was disposed of with the direction for the appellant to pay the central excise duty in cash for the outward transportation and receive the credit availed on inward transportation through a debit entry, while the penalties were set aside due to the lack of malicious intent.

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