2016 (2) TMI 361 - AT - Central Excise

Interest and Penalty Demands Reversed on Service Tax Credit; Precedents Cited

The Tribunal held that the demand of interest on inadmissible credit of service tax was unsustainable as the credit was reversed before utilization, ... Admissibility of credit of service tax paid on input service used in the manufacture of exempted as well as dutiable goods - demand of interest and imposition of penalty - Held that:- The demand of interest is countered by the learned Counsel by putting forward the contention that the credit was reversed prior to the utilization. Opening and closing balance of the credit amount pertaining to the respective months substantiates this contention put forward by the appellant. The judgements relied upon by the learned counsel analyses the issue of payment of interest in the case of reversal of credit. Hon’ble Karnataka High Court in the case of CCE, ST and LTU, Bangalore vs. Bill Forge Pvt.Ltd. (2011 (4) TMI 969 - KARNATAKA HIGH COURT ) held that before utilization of credit, if the same has been reversed it would amount to not taking credit and would not attract liability of interest. Similar view has been taken in the other judgements cited and placed before us. Following the principle laid in these judgements, we hold that as the credit has been reversed before utilization, the demand of interest is unsustainable. Imposition of penalty - Interestingly, it is seen stated in the show cause notice that the same is issued invoking the extended period of limitation. As per records, the department has come to know about wrongful availment of credit and informed the appellants the same on 9.8.2007. The show cause notice is dated 24.1.2008 which in our view is within the period of limitation. We do not find any ground necessary for invoking the extended period of limitation. Be that as it may, the contention of the appellant that there was no suppression of facts or wilful mis-statement is not without force. On 4.7.2006, the appellants have written letter explaining the manner of availing the credit of inputs, capital goods and input service. Further, when the department called for to furnish the details regarding availment of credit, the appellants had furnished the same. On such score, we hold that the respondent have miserably failed to establish suppression or mis-statement with intention to evade payment of duty on the part of the appellants. Pursuant to the above reason, we are of the considered view that the imposition of penalty is unwarranted. Issues Involved:Admissibility of credit of service tax paid on input service used in the manufacture of exempted and dutiable goods; Demand of interest and imposition of penalty.Analysis:1. Admissibility of Credit of Service Tax:The appellants were engaged in manufacturing both exempted and dutiable products without maintaining separate accounts as required by Rule 6 of Cenvat Credit Rules, 2004. The department contended that the credit availed on input service was not admissible due to this reason. After a show cause notice, the Order-in-Original confirmed the demand of inadmissible credit along with interest and penalty. The appellant challenged the demand of interest, arguing that the credit reversal before utilization should not attract interest. Citing various judgments, including CCE vs. Bill Forge Pvt.Ltd., the appellant's contention was supported. The Tribunal held that as the credit was reversed before utilization, the demand of interest was unsustainable.2. Imposition of Penalty:The department imposed a penalty invoking the extended period of limitation, alleging wrongful availment of credit. However, the Tribunal found that the show cause notice was issued within the limitation period. The appellant argued against the imposition of penalty, stating that there was no suppression of facts or wilful misstatement. The appellant had previously informed the department about their credit availing process and provided requested details. The Tribunal agreed that there was no evidence of suppression or misstatement with the intention to evade duty. Therefore, the imposition of penalty was deemed unwarranted. Consequently, the impugned order was modified to set aside the demand of interest and penalty, partially allowing the appeal.This detailed analysis of the judgment highlights the issues of admissibility of credit of service tax and the imposition of penalty, providing insights into the arguments presented, legal principles applied, and the final decision rendered by the Tribunal.