Tribunal overturns penalties on appellant for service tax error

The Tribunal allowed the appeal, setting aside the demand and penalties imposed on the appellant for wrongly availing credit of service tax on the transport of gas through a pipeline not consumed in their factory. The Tribunal held that there was no suppression of facts by the appellant, and the situation was revenue-neutral as both units paid excise duty on their finished products. Consequently, the extended period of limitation was deemed not maintainable, granting the appellant consequential benefits as per the law.

---

---

Issues:
Admissibility of credit of service tax paid on transport of gas through pipeline not consumed in the factory.

Analysis:
The issue in this appeal revolves around whether the credit of service tax paid on the transport of gas through a pipeline by M/s Gas Authority of India Ltd, not consumed in the factory of the appellant, is admissible to them or not. The appellant, engaged in manufacturing Ceramic Glazed Frits, had two units - unit-1 and unit-2. The appellant received gas from M/s GAIL in unit-1, and some of it was transferred to unit-2 without any charge due to the unity of ownership between both units. The appellant claimed that the input service of transporting gas through the pipeline was received by unit-1, justifying the full credit. However, the Revenue contended that the appellant availed excess Cenvat Credit attributable to the gas not consumed by unit-1, leading to a demand for wrongly availed credit, interest, and penalties.

During the audit, it was found that the appellant had taken full credit of service tax paid for the transportation of piped fuel gas by M/s GAIL, even though there were no separate bills for gas receipt at unit-2, and details of gas consumption in unit-2 were lacking. The Revenue argued that the appellant was entitled to only proportionate credit based on the gas quantity consumed in unit-1. The appellant, in response, highlighted the unity of ownership between unit-1 and unit-2, stating that the gas was received at unit-1 and then supplied to unit-2 at no additional cost. They emphasized that the input service received was by unit-1, justifying the full credit claim.

The appellant, in their defense, mentioned that they were not aware of the requirement to take Cenvat Credit of input service in proportion to the manufacture of finished goods, hence taking the whole credit in unit-1. The show cause notice was adjudicated, confirming the demand and penalties, which was upheld by the Commissioner (Appeals). However, the Tribunal found that there was no suppression or falsification of records by the appellant, and the situation was revenue-neutral as both units cleared their finished products by paying excise duty. Therefore, the extended period of limitation was deemed not maintainable, leading to the appeal being allowed, setting aside the impugned order, and granting the appellant consequential benefits as per the law.

---