Appeal allowed, interest & penalties set aside on disallowed CENVAT credit for input services. Member (Judicial) decision.

The appeal was allowed, setting aside the demand for interest and penalties imposed on disallowed CENVAT credit for various input services. The Member (Judicial) held that since the credit was reversed before utilization, following the precedent set by a High Court decision, the demand for interest and penalties was not sustainable. The impugned order was modified to uphold the demand for CENVAT credit on input services only, with relief granted by setting aside the interest and penalties.

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Issues:
Disallowed CENVAT credit on various input services; Demand of interest and penalty imposed.

Analysis:
The appellants, engaged in the manufacture of steel forgings and machined aluminum rings, received a show cause notice proposing to disallow CENVAT credit on several input services. The original authority disallowed credit on certain services, a decision upheld by the Commissioner (Appeals), leading to the current appeal. The appellant contested the disallowed credit on services such as outward courier, telephone charges, housekeeping service, cargo handling services, insurance service, consultancy service, and others. The appellant reversed the entire credit before utilization and challenged the demand of interest and penalties imposed.

During the hearing, the appellant's counsel cited a precedent in the case of Commissioner of Central Excise, Madurai Vs. Strategic Engineering (P) Ltd., arguing that since the credit was reversed before utilization, the demand for interest and penalties was not sustainable. The ld. AR supported the findings in the impugned order. After hearing both sides, the Member (Judicial) noted that the appellant had indeed reversed the credit before utilization, covering the period from April 2007 to March 2010. Referring to the decision of the Hon'ble High Court of Madras in the Strategic Engineering (P) Ltd. case, it was held that when the credit is reversed before utilization, the demand for interest and penalties cannot be sustained.

Consequently, the Member (Judicial) set aside the demand for interest and penalties, modifying the impugned order to only uphold the demand for CENVAT credit on input services. The appeal was allowed with the specific relief of setting aside the interest demand and penalties, with any consequential relief to follow. The operative portion of the order was pronounced in open court, bringing the matter to a close.

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