2015 (11) TMI 1353 - AT - Service Tax

Tribunal rules on CENVAT credit penalties and interest, emphasizing Rule 14 amendment

M/s. Dell India Pvt. Ltd. Versus Commissioner of Service Tax Bangalore-service Tax

The Tribunal ruled that interest and penalties are applicable when CENVAT credit is wrongly taken, utilized, or erroneously refunded, emphasizing the ... Levy of interest and penalty on reversal of CENVAT credit - they had only taken the CENVAT credit erroneously but had sufficient balance in their account of CENVAT credit - Held that:- date 1.4.2012 is the watermark i.e., the activities and the operations of an assessee (manufacturer or service provider) have to follow the provisions of Rule 14 of CENVAT Credit Rules as they existed then (before 1.4.2012); and after 1.4.2012 when the subject amendment was made, an assessee would be entitled to the benefit as provided by the said amendment. The Hon’ble Supreme Court in the case of UOI vs. Ind-Swift (2011 (2) TMI 6 - Supreme Court) and Hon’ble High Court of Bombay in the case of CCE, Pune-I vs. GL & V India Pvt. Ltd. (2015 (5) TMI 375 - BOMBAY HIGH COURT) make the position clear that one cannot do away with the wording ‘OR’ as appeared in Rule 14 twice prior to the watermark date 1.4.2012 and one cannot replace the said wording ‘OR’ with the wording ‘AND’ and reading it so. Respondent viz., Commissioner of Central Excise and Service Tax, LTU, Bangalore has not been given any evidence other than the fact of taking wrong or erroneous CENVAT credit to prove appellant’s intention to evade payment of service tax. When no intention to evade payment of service tax is proved beyond doubt it will not be right to impose penalty on the appellant under Section 78 read with Rule 15(3) of CENVAT Credit Rules, 2004. Consequently on the issue of penalty, the appellant deserves relief and the impugned order in respect of penalty imposed on the appellant is hereby set aside. - appeal does not succeed on the issue of interest but the appellant will get relief on the penalty part as the penalty imposed on them has been set aside by this order. - Decided party in favour of assessee. Issues: Liability of interest and penalty on unauthorized availment/taking of CENVAT credit.Analysis:1. The appellant argued that they should not be penalized for the unutilized portion of the CENVAT credit they had erroneously taken, citing the amendment to Rule 14 of CENVAT Credit Rules effective from 1.4.2012. They relied on decisions by the Hon'ble Madras High Court and Karnataka High Court to support their claim that interest and penalty are not applicable if the credit is not utilized.2. The respondent contended that under the provisions of Rule 14 prior to the amendment, interest and penalties are leviable for any wrongful taking or utilization of CENVAT credit. Referring to the Hon'ble Supreme Court's decision, the respondent argued that recovery of credit along with interest is mandatory in such cases.3. The Tribunal analyzed the situation, emphasizing the importance of the amendment to Rule 14 effective from 1.4.2012. The Tribunal highlighted the significance of the wording 'OR' in the rule, as interpreted by the Hon'ble Supreme Court. The Tribunal clarified that interest and penalties are applicable when CENVAT credit is wrongly taken, utilized, or erroneously refunded.4. The Tribunal referred to the Hon'ble Bombay High Court's decision, which reiterated that the word 'OR' in Rule 14 cannot be substituted with 'AND.' The Tribunal concurred with the interpretation provided by the Hon'ble Supreme Court and the Bombay High Court, emphasizing that the law in force at the time of the wrongful credit must be applied.5. Regarding the penalty imposed on the appellant, the Tribunal acknowledged that there was no intention to evade payment of service tax. As the appellant promptly rectified the erroneous credit upon detection, the Tribunal found no evidence of intent to evade tax. Consequently, the penalty imposed on the appellant under Section 78 read with Rule 15(3) of CENVAT Credit Rules, 2004, was set aside.6. In conclusion, the Tribunal ruled that while the appeal did not succeed on the issue of interest, the appellant was granted relief on the penalty aspect. The penalty imposed was overturned based on the lack of evidence indicating an intention to evade tax.This comprehensive analysis of the judgment provides a detailed overview of the arguments presented by both parties and the Tribunal's decision on the liability of interest and penalty on unauthorized availment/taking of CENVAT credit.