2016 (6) TMI 198 - AT - Service Tax

Tribunal Allows Service Tax Exemption for Timely Credit Reversal

The Tribunal set aside the Order-in-Original demanding differential Service Tax liability from the appellant for services provided during 2006-07 to ... Benefit of exemption notification subject to non-availment of CENVAT credit - reversal of CENVAT credit before adjudication equivalent to non-availment - eligibility for abatement under Notification No. 01/2006-STBenefit of exemption notification subject to non-availment of CENVAT credit - reversal of CENVAT credit before adjudication equivalent to non-availment - eligibility for abatement under Notification No. 01/2006-ST - Whether the appellant was entitled to the 67% abatement under Notification No. 01/2006-ST despite having availed CENVAT credit during the relevant period, having reversed that credit before adjudication. - HELD THAT: - The Tribunal examined whether the condition for claiming the benefit of Notification No. 01/2006-ST - that no CENVAT credit be taken - was satisfied where the appellant had initially availed some CENVAT credit but had reversed the entire credit before the adjudication order. Reliance was placed on the decision of the Hon'ble Supreme Court in Precot Meridian Ltd., which held that where previously taken credit was refunded or repaid prior to adjudication, such reversal is to be treated as equivalent to non-availment for purposes of qualifying for an exemption notification. Applying that principle, the Tribunal found that the appellant's reversal of the entire CENVAT credit prior to adjudication rendered them eligible for the abatement under Notification No. 01/2006-ST. The Tribunal rejected the Revenue's reliance on earlier Supreme Court authorities as distinguishable in view of the directly on-point and later decision in Precot Meridian Ltd., and concluded that the adjudicating authority's confirmation of Service Tax liability (with interest and penalties) was unsustainable. [Paras 5, 6]The impugned order confirming service tax liability, interest and penalties is set aside and the appeal is allowed; consequential relief, if any, to follow.Final Conclusion: The Tribunal allowed the appeal, holding that reversal of CENVAT credit before adjudication is equivalent to non-availment and therefore the appellant was entitled to the 67% abatement under Notification No. 01/2006-ST; the impugned adjudication order confirming service tax, interest and penalties was set aside. Issues involved:Demand of differential Service Tax liability based on Notification No. 1/2006-ST for services provided during 2006-07 to 2008-09; Availment of CENVAT credit on inputs and input services affecting the abatement of 67% on taxable value; Eligibility for exemption under Notification No. 1/2006-ST due to reversal of entire CENVAT credit before adjudication order.Analysis:The appeal in question challenges Order-in-Original No. 14/ST/Commr./2011, which demanded differential Service Tax liability from the appellant for services provided during 2006-07 to 2008-09. The issue revolves around the appellant's compliance with Notification No. 1/2006-ST, specifically regarding the abatement of 67% on the taxable value despite availing CENVAT credit on certain inputs and input services. The adjudicating authority found the appellant liable for Service Tax along with interest and penalties due to not meeting the conditions of the notification.The appellant argued that they reversed the entire CENVAT credit availed during the period, making them eligible under Notification No. 1/2006-ST. They cited the decision of the Hon'ble Supreme Court in the case of Commissioner of Central Excise & Customs Vs. Precot Meridian Ltd. to support their position. On the other hand, the Departmental Representative reiterated the findings, emphasizing that the exemption notification must be adhered to in its entirety, and the appellant availed the 67% abatement under the notification. They relied on judgments like Kartar Rolling Mills Vs. Commissioner of Central Excise, New Delhi and Collector of Customs Vs. Malwa Industries Limited.After considering both sides' submissions, the Tribunal found the issue to be narrow. The appellant had availed the abatement under Notification No. 1/2006-ST but was denied due to availing CENVAT credit on inputs and input services. However, the Tribunal noted that the appellant had reversed the entire CENVAT credit before the adjudication order, effectively nullifying the credit availed. Citing the judgment in the case of Precot Meridian Ltd., the Tribunal upheld that the reversal made before adjudication was equivalent to non-availment of credit, thus supporting the appellant's eligibility for the exemption. Consequently, the Tribunal set aside the impugned order and allowed the appeal with any consequential relief.In conclusion, the judgment highlights the importance of strict compliance with exemption notification conditions and the significance of timely reversal of credits to establish eligibility for exemptions under Service Tax regulations. The decision underscores the legal principles established in relevant case laws and emphasizes the Tribunal's adherence to precedent-setting judgments in resolving tax liability disputes.