2015 (11) TMI 840 - HC - Service Tax

Government Undertaking Entitled to CENVAT Credit Despite Service Tax Misconception

The Commissioner of Central Excise, And Service Tax Large Taxpayer Unit Versus M/s Tamilnadu Petroproducts Ltd, The Customs Excise And Service Tax Appellate Tribunal

The High Court upheld the decision of the CESTAT in favor of the assessee, ruling that the availing of CENVAT credit by a Government of Tamil Nadu ... Availment of CENVAT Credit - GTA service - credit of service tax paid which was not liable to be paid - Held that:- first respondent/assessee was not liable to pay service tax on the transportation of goods both inward and outward upto 31.12.2004. The liability was imposed only with effect from 1.1.2005. But, unfortunately, the first respondent/assessee paid service tax, even at a time when there was no liability on them. Since they made payment of tax under the impression that they were due to pay, they claimed CENVAT Credit to that extent. It is not the case of the Department that the first respondent claimed CENVAT Credit in respect of an amount that they had not paid or in excess of the amount that they have paid. The only grievance of the Department is that if the assessee had paid tax which they were due to pay or if they had paid duty in excess of what they are liable to pay, the only course open to them is to claim refund and not to make use of CENVAT Credit. But, we do not think so. If, upon a misconception of the legal position, the assessee had paid the tax that he was not liable to pay and such assessee also happens to be an assessee entitled to certain credits such as CENVAT Credit, the availing of the said benefit cannot be termed as illegal. Therefore, we find no infirmity in the order of the Tribunal. - Decided against Revenue. Issues:1. Availing CENVAT credit on inputs and capital goods for payment of duty.2. Alleged misuse of CENVAT credit by the assessee.3. Imposition of penalty and interest by the original authority.4. Dismissal of appeal regarding demand and interest, but setting aside of penalty.5. Decision of the CESTAT in favor of the assessee.6. Appeal by the Commissioner of Excise challenging the CESTAT order.Analysis:1. The first issue involves the assessee, a Government of Tamil Nadu Undertaking, availing CENVAT credit on various inputs and capital goods under the CENVAT Credit Rules for payment of duty on finished goods. The assessee also paid service tax on freight charges for inward and outward transportation of goods. A surprise inspection revealed alleged misuse of CENVAT credit by the assessee, leading to a show cause notice for recovery of the wrongly availed amount.2. The second issue pertains to the alleged misuse of CENVAT credit by the assessee, as they used the credit against service tax paid prior to 1.1.2005 when there was no liability for service tax on transportation. The Department sought to recover the wrongly availed CENVAT credit, along with imposing a penalty and interest.3. The third issue involves the imposition of a penalty and interest by the original authority on the assessee after a demand was made for the amount representing the wrongly availed CENVAT credit. The original authority directed the charge of interest under section 11AB and imposed a penalty of Rs. 5000.4. Regarding the fourth issue, the assessee filed an appeal against the order, which was dismissed concerning the demand and a portion of the interest. However, the imposition of penalty was set aside by the first appellate authority.5. The fifth issue highlights the decision of the CESTAT in favor of the assessee upon further appeal. The CESTAT allowed the appeal filed by the assessee, leading to the Commissioner of Excise challenging this decision through the above appeal.6. The final issue involves the High Court's judgment, where it was noted that the assessee, under a misconception of the legal position, paid service tax when not liable to do so, leading to the availing of CENVAT credit. The Court found no illegality in the assessee's actions, stating that if the tax was paid due to a misconception, the availing of CENVAT credit cannot be termed illegal. Consequently, the Court dismissed the appeal, ruling in favor of the assessee and against the Revenue.