2016 (9) TMI 133 - AT - Central Excise

Liability for Interest on Cenvat Credit Reversed Before Utilization

Issue 1 dealt with liability for interest on wrongly taken cenvat credit reversed before utilization. The Karnataka HC held that interest was not payable ... Chargeability - interest - Cenvat credit wrongly taken - reversed the same before utilization of the credit - Held that:- keeping in view the judgment of the Hon’ble Karnataka High Court in the case of CCE & ST, LTU Bangalore Vs. M/s. Bill Forge (P) Ltd. [2011 (4) TMI 969 - KARNATAKA HIGH COURT] and the Larger Bench decision of the Tribunal in the case of J.K Tyre & Industries Ltd., wherein it was held that interest is not to be paid on irregular cenvat credit if the same is reversed before utilization. Therefore, impugned orders are not sustainable. Cenvat credit - input service tax credit on Brokerage and Commission services - appellant providing residential accommodation to ex-pat employees voluntarily and has no direct and indirect relation to the manufacture of final products which are cleared on payment of duty - Held that:- in view of the decision of tribunal in the case of M/s. HEG Ltd. Vs. CCE, Raipur [2010 (6) TMI 306 - CESTAT, NEW DELHI], wherein it has been held that brokerage/commission paid is a business activity and eligible for input service tax credit, the impugned order holding it as a voluntary service and has nothing to do with the business of the appellant is wrong and not sustainable in law. - Decided in favour of appellant with consequential relief Issues:1. Liability for interest on wrongly taken cenvat credit reversed before utilization.2. Entitlement to cenvat credit on input service tax for Brokerage and Commission services.Issue 1: Liability for interest on wrongly taken cenvat credit reversed before utilizationThe appellant filed three appeals questioning the imposition of interest on cenvat credit wrongly taken but reversed before utilization. The audit officials objected to the appellant not paying interest on credit reversed for damaged auto components. The Order-in-Original confirmed the demand for interest. The appellant contended that interest was not payable as the credit was reversed before utilization, citing various judgments. The AR argued that Rule 14 of the Cenvat Credit Rules mandated interest payment even if credit was reversed before use, referring to a Supreme Court judgment. The issue was whether interest was chargeable on wrongly taken cenvat credit even if reversed before utilization. The Karnataka High Court held that interest was not payable if the credit was reversed before utilization. The Tribunal also ruled in favor of not paying interest on irregular cenvat credit if reversed before use. Consequently, the impugned orders were deemed unsustainable, and the appeals were allowed.Issue 2: Entitlement to cenvat credit on input service tax for Brokerage and Commission servicesIn another appeal, the denial of cenvat credit on input service tax for Brokerage and Commission services was contested. The denial was based on the argument that providing residential accommodation to ex-pat employees had no direct relation to the manufacturing of final products. The appellant argued that providing accommodation was obligatory under an arrangement with their overseas joint venture partner. The services were directly linked to the manufacturing activities, as the employees worked in the factory premises. The definition of input service under Rule 2(l) was analyzed to determine eligibility for cenvat credit. The Tribunal's decision in a similar case supported the eligibility of brokerage/commission services for input service tax credit. The impugned order denying the credit on the grounds of voluntariness and lack of business connection was found to be incorrect and unsustainable in law. Consequently, the order denying the cenvat credit on brokerage commission was set aside, and the appeal was allowed.In conclusion, all three appeals were allowed by setting aside the impugned orders, providing consequential relief if necessary.