Tribunal permits Cenvat Credit for tax arrears, waives penalties under Sections 76, 77, and 78

The tribunal allowed the appeal, ruling in favor of the appellant. They were permitted to use Cenvat Credit for paying service tax arrears, and penalties under Sections 76, 77, and 78 were deemed inapplicable due to compliance with Section 80(2) of the Finance Act, 2012. The impugned order was set aside, and the penalties were waived.

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Issues Involved:
1. Legitimacy of paying service tax arrears from Cenvat Credit.
2. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
3. Compliance with Rule 3(4) of Cenvat Credit Rules, 2004.
4. Retrospective application of service tax on Renting of Immovable Property.

Detailed Analysis:

Legitimacy of Paying Service Tax Arrears from Cenvat Credit:
The appellant paid service tax for the period 2007-08 to 2009-10 using Cenvat Credit available in February 2011. The department contested this, arguing that Cenvat Credit should only be utilized if it was available on the last day of the period for which service tax was due. The appellant argued that the service tax liability arose only after the retrospective amendment in 2012, making it an arrear payable under Section 73 of the Finance Act, 1994. The tribunal agreed with the appellant, citing a Board Circular dated 28.3.2012, which clarified that arrears of duty could be paid using Cenvat Credit accrued after the period to which the arrears pertained.

Applicability of Penalties under Sections 76, 77, and 78:
The appellant contended that no penalties should be imposed as per the amended Section 80(2) of the Finance Act, 2012, which provides for waiver of penalties if service tax on Renting of Immovable Property is paid within six months from the date the Finance Bill, 2012, received the President's assent. The tribunal found that the appellant had paid the service tax and interest before the due date, thus meeting the conditions for waiver of penalties under Sections 76, 77, and 78.

Compliance with Rule 3(4) of Cenvat Credit Rules, 2004:
The department argued that Rule 3(4) restricts the use of Cenvat Credit to the extent available on the last day of the period for which service tax is due. The tribunal, however, noted that this rule applies to regular periodical payments and not to arrears under Section 73. The tribunal cited the Board Circular, which stated that the restriction on the utilization of Cenvat Credit does not apply to demands confirmed under Section 11A of the Central Excise Act, 1944, and by extension, to Section 73 of the Finance Act, 1994.

Retrospective Application of Service Tax on Renting of Immovable Property:
The appellant argued that the taxability of Renting of Immovable Property was under dispute until a retrospective amendment in 2012 validated the levy from June 1, 2007. The tribunal acknowledged this and noted that the service tax liability became an arrear only after the amendment, thus supporting the appellant's use of Cenvat Credit available at the time of payment in 2011.

Conclusion:
The tribunal set aside the impugned order, ruling that the appellant was entitled to use Cenvat Credit for paying service tax arrears and that penalties under Sections 76, 77, and 78 were not applicable due to compliance with Section 80(2) of the Finance Act, 2012. The appeal was allowed, and the penalties were waived.

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