2009 (10) TMI 8 - AT - Service Tax

Tribunal Upholds Cash Payment for Service Tax, Sets Aside Interest: Procedural Rectification and Justice Prevail

The Tribunal upheld the Commissioner's decision to allow payment of service tax in cash while restoring the Cenvat account entry, setting aside the ... Utilisation of Cenvat credit for payment of service tax - liability to pay interest under Section 75 of the Finance Act, 1994 - reversal of Cenvat credit and restoration of debit entry - procedural irregularity versus substantive retention of government money - waiver of interest by a quasijudicial authorityUtilisation of Cenvat credit for payment of service tax - liability to pay interest under Section 75 of the Finance Act, 1994 - reversal of Cenvat credit and restoration of debit entry - procedural irregularity versus substantive retention of government money - Whether interest under Section 75 is payable where service tax was discharged by utilisation of Cenvat credit (an accepted mode prior to 23.08.07) and subsequently the Cenvat debit entry was reversed and the tax paid in cash. - HELD THAT: - The Commissioner (Appeals) found that payment of service tax on GTA service by Cenvat credit was an accepted mode prior to 23.08.07 and, since the service tax was thus discharged in time, there was no failure to pay requiring interest; accordingly the demand for interest under Section 75 was set aside (para 9 reproduced at para 3). The appellant voluntarily offered to rectify the accounting by reversing the Cenvat debit entry and paying the service tax in cash. The Tribunal observed that reversal of the Cenvat credit and payment in cash corrected a procedural irregularity and did not amount to retention of government money which ordinarily gives rise to statutory interest. While strict law may prescribe interest where tax is retained, the factual position here was that no such retention occurred and no financial benefit was derived by the respondents; the Commissioner's reliance on Tribunal precedent was noted. Having regard to the respondents' voluntary rectification and to the nature of the irregularity, the Tribunal found it appropriate in the interest of justice to uphold the setting aside of interest and to reject the Revenue's appeals (paras 3-4). [Paras 3, 4]Order of Commissioner (Appeals) setting aside demand of interest under Section 75 is upheld; reversal of Cenvat credit and payment in cash accepted as rectification of procedural irregularity and the Revenue's appeals are rejected.Final Conclusion: The Tribunal rejects the Revenue appeals and upholds the Commissioner (Appeals)'s order setting aside recovery of interest where service tax had been discharged by Cenvat credit (an accepted mode prior to 23.08.07) and the respondents subsequently reversed the Cenvat entry and paid in cash, treating the act as rectification of a procedural irregularity rather than retention of government funds. Issues:- Appeal against Commissioner (Appeals) orders regarding payment of service tax using Cenvat Credit- Liability for interest on service tax paymentIssue 1: Appeal against Commissioner (Appeals) orders regarding payment of service tax using Cenvat CreditThe Revenue appealed against the orders passed by the Commissioner (Appeals) concerning two respondents who paid service tax on outward transportation charges using Cenvat Credit. The Commissioner held that utilizing Cenvat credit for service tax payment was incorrect. The appellants then appealed to the Tribunal. During the proceedings, the appellants' consultant acknowledged that a similar issue was before a Larger Bench. The appellants offered to pay the service tax in cash, leading to a direction to pay in cash while restoring the Cenvat account entry. The Revenue appealed against the Commissioner's decision, which set aside the interest liability as well.Issue 2: Liability for interest on service tax paymentThe Revenue contended that once it was acknowledged that reversing Cenvat credit for service tax payment was incorrect, the statutory interest liability could not be waived by any quasi-judicial authority. The Commissioner's order addressed the interest recovery under Section 75 of the Finance Act, 1994. The Commissioner noted that prior to a specific date, payment of service tax through Cenvat credit was an accepted mode. As the appellants paid the service tax through Cenvat credit on time, there was no failure to pay on time, and no financial benefit was gained by not initially paying in cash. The Commissioner relied on a Tribunal decision to set aside the interest recovery. The Revenue argued that the Commissioner wrongly relied on a decision applicable to a different situation involving total payment in cash. The Tribunal found that the appellants rectified a procedural irregularity by reversing the Cenvat credit and paying in cash, without retaining government funds. While interest might be due strictly, the Tribunal considered the voluntary rectification of the irregularity and the lack of appeal by the department against setting aside the penalty. The Tribunal rejected the Revenue's appeals to settle the issue in the interest of justice.---