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, citing precedents such as CCE vs. Bill Forge Pvt. Ltd. The imposition of penalty was deemed unwarranted as there was no evidence of suppression or wilful misstatement to evade duty, leading to the appeal being partially allowed with the setting aside of the interest and penalty demands.

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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.

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