Appeal partially allowed, requiring reversal of credits & lost equipment, no penalties imposed

The Tribunal partially allowed the appeal, requiring the appellant to reverse credits for certain periods and lost Consumer Premises Equipment (CPEs) with interest. The demand for reversal of credits for deactivated CPEs was set aside. Penalties were not imposed due to the absence of fraudulent intent or suppression of facts.

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Issues Involved:
1. Reversal of Cenvat credit availed on services provided in Jammu and Kashmir.
2. Reversal of Cenvat credit on Consumer Premises Equipment (CPEs) lost in transit or at distributor's premises.
3. Reversal of Cenvat credit on deactivated CPEs written off in financial accounts.

Issue-wise Detailed Analysis:

1. Reversal of Cenvat credit availed on services provided in Jammu and Kashmir:

The appellant availed Cenvat credit on CPEs installed in Jammu and Kashmir, where the Finance Act, 1994 is not applicable. The Department demanded reversal of this credit, considering the services as exempt under Rule 2(e) of the Cenvat Credit Rules, 2004. The appellant contended that they paid service tax on these services from 2009 to January 2013, utilizing Cenvat credits and cash payments. They argued that this payment amounted to a reversal of the credit taken, supported by several judicial precedents. The Tribunal agreed, holding that service tax paid on otherwise exempt services amounts to reversal of the credit. However, for the period February 2013 to March 2014, when no service tax was paid, the appellant must reverse the credit of Rs. 87,35,678/- along with applicable interest. The Tribunal found no grounds for imposing penalties under Section 78, as there was no fraudulent intent or suppression of facts.

2. Reversal of Cenvat credit on CPEs lost in transit or at distributor's premises:

The Department demanded reversal of Rs. 62,66,437/- for CPEs lost before being put to use. The appellant admitted the liability and highlighted that they had regularly reversed credits for lost CPEs in other financial years. They argued that there was no malafide intent, and they had deposited Rs. 5 crores voluntarily before the show cause notice. The Tribunal upheld the demand for reversal of the credit and interest but found no grounds for imposing penalties, citing the absence of willful suppression or fraudulent intent.

3. Reversal of Cenvat credit on deactivated CPEs written off in financial accounts:

The Department demanded reversal of Rs. 9,84,62,871/- for deactivated CPEs, invoking Rule 3(5A) of the Cenvat Credit Rules, 2004. The appellant argued that these CPEs were used for providing output services and were not removed from their premises, making Rule 3(5A) inapplicable. The Tribunal agreed, noting that Rule 3(5) allows removal of capital goods for providing output services without reversing the credit. The Tribunal found that Rule 3(5A) and 3(5B) were not applicable, as the CPEs were used and not written off before use. The Tribunal also noted that the Department was aware of similar practices from a previous adjudication, making the extended period of limitation inapplicable. The demand for reversal of credit under Rule 3(5A) was set aside.

Conclusion:

The Tribunal partially allowed the appeal, requiring the appellant to reverse Rs. 87,35,678/- for the period February 2013 to March 2014 and Rs. 62,66,437/- for lost CPEs, along with applicable interest. The demand for reversal of Rs. 9,84,62,871/- for deactivated CPEs was set aside. The Tribunal found no grounds for imposing penalties under Section 78 or Rule 15(1) of the Cenvat Credit Rules, 2004. The order was pronounced in open court on 11/07/2019.

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