2022 (8) TMI 1395 - HC - Service Tax

Tribunal Decision Upheld in Tax Appeal Case.

The High Court upheld the Tribunal's decision to dismiss the appeal by the Commissioner of Central Excise, Customs, and Service Tax. The Court found that ... Cenvat credit - compliance with Rule 6(2) of the Cenvat Credit Rules, 2004 - maintenance of separate records - utilisation of Cenvat credit for taxable and exempt services - reliance on departmental verification report - dropping of proceedingsCenvat credit - maintenance of separate records - compliance with Rule 6(2) of the Cenvat Credit Rules, 2004 - reliance on departmental verification report - dropping of proceedings - Validity of the order dropping proceedings and sustaining the assessee's claim to Cenvat credit on the basis of the Range Officer's report and the chartered accountant's certificate - HELD THAT: - The Commissioner issued a show cause notice alleging erroneous availment and utilisation of Cenvat credit for the period 1-4-2011 to 31-3-2012. The assessee replied that it maintained separate division-wise computerized books, reversed credit attributable to exempted activities and charged it to profit and loss, and that only net credit was shown in returns. The jurisdictional Range Officer verified the practice and records, reported that private accounts were maintained, that credits exclusively for exempted services were not availed, that common (indirect) expenses were adjusted in private accounts and not reflected in ST-3 returns, and identified specific input-service credits shown in private accounts. On the basis of the Range Officer's verification and the chartered accountant's certificate, the Commissioner found compliance with the Cenvat Credit Rules and dropped proceedings. The CESTAT upheld that factual finding. The Court observed that no error was pointed out in the Range Officer's report, that the departmental authorities effectively conceded absence of rule contravention, and that acceptance of the verification logically supports the orders of the Commissioner and the Tribunal. Applying the principle that departmental verification and documentary certification establishing compliance justify dropping of proceedings where no contrary infirmity is shown, the Court found no ground to interfere with the Tribunal's factual conclusion that the credit claimed was sustainable. [Paras 6, 7, 8]The order dropping proceedings and the Tribunal's dismissal of the departmental appeal were upheld; the assessee's claim to Cenvat credit for the stated period was sustained.Final Conclusion: The appeal is dismissed; the Tribunal's order upholding the assessee's Cenvat credit for 1-4-2011 to 31-3-2012 and affirming the Commissioner's decision to drop proceedings is maintained. Issues:Challenge to final order dated 14-9-2018 in S.T. No. 21676 of 2014 on the file of the CESTAT, Bangalore regarding Cenvat credit availed by a shipping service company.Analysis:The appeal was filed by the Commissioner of Central Excise, Customs, and Service Tax challenging the final order dated 14-9-2018 in S.T. No. 21676 of 2014 on the file of the CESTAT, Bangalore. The respondent, a shipping service company, availed credit under the Cenvat Credit Rules, 2004 on Service Tax paid on input service. The show cause notice issued by the appellant raised concerns about the wrongful utilization of Cenvat credit for payment of Service Tax, Education Cess, and Secondary & Higher Education Cess for the period 1-4-2011 to 31-3-2012. The notice demanded recovery of the credit, interest, and penalties. In response, the respondent denied the allegations, explaining the classification of inputs into direct and indirect expenses and the reversal of credit on indirect expenses during the disputed period.The assessee maintained separate private accounts for CENVAT credit, and the Range Officer confirmed that no credit was availed on input services exclusively meant for exempted services. The private accounts showed the full credit availed, with deductions for indirect expenses common to taxable and exempted services. The net credit amount was reflected in the ST3 Returns. The Range Officer's report highlighted specific details of the credit availed and utilized by the assessee for both taxable and exempted services. A certificate from a chartered accountant confirmed the maintenance of separate books of account in the computerized system for different divisions.Based on the clarification from the Range Officer and the certificate from the chartered accountant, the Commissioner found the assessee compliant with the Cenvat Credit Rules, 2004. Consequently, the demand raised in the show cause notice was deemed unsustainable, and proceedings were dropped. The Department appealed to the CESTAT, Bangalore, challenging the Commissioner's order. The Tribunal, considering the certificate and the Range Officer's report, concluded that the assessee had maintained separate records as required by the Cenvat Credit Rules, leading to the dismissal of the Department's appeal.The core issue for consideration was whether the Commissioner's decision to drop further action based on the Range Officer's report was legal. Both the Tribunal and the High Court found that the report was accurate, and the assessee had followed the rules diligently. The Tribunal's decision to dismiss the appeal was upheld by the High Court, as there was no evidence of rule violations by the assessee. The appeal by the Commissioner failed, and the High Court dismissed the same, affirming the Tribunal's decision.