Tribunal overturns demand on Cenvat credit for Service Tax, no penalty imposed

The Tribunal allowed the appeal, setting aside the demand for reversing the Cenvat credit and penalty imposed on a manufacturing company for irregularly availing Cenvat credit on Service Tax paid under Reverse Charge Mechanism for freight of imported goods. The judgment emphasized that since the payment was not disputed and there was no evidence of fraud, the appellant was entitled to retain the credit, granting consequential relief and ruling out the imposition of a penalty under section 11AC of the Act.

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Issues:
Appeal against confirmation of demand of irregular Cenvat credit availed on payment under Reverse Charge Mechanism as Service Tax on freight of imported goods along with interest and penalty for the period 2016-17.

Analysis:
The appellant, a manufacturing company, appealed against the Order-in-Appeal confirming the demand of irregular Cenvat credit amounting to Rs. 14,82,558 for payment made under Reverse Charge Mechanism as Service Tax on freight of imported goods for the period 2016-17. The dispute arose from the appellant availing Cenvat credit on Service Tax paid for transportation of goods from non-taxable territory to India. The Adjudicating authority and the Commissioner (Appeals) upheld the demand. The appellant contended that since the Service Tax was paid under Reverse Charge and for business use only, denial of Cenvat credit was not justified. The Revenue argued in favor of the first appellate authority's order.

The main issue was whether the appellant was entitled to Cenvat credit of Service Tax paid on the freight component for transporting goods from a non-taxable territory to India, even though the service was exempt from Service Tax during the relevant period. The Adjudicating authority confirmed that the services were exempt from Service Tax when the appellant availed them. However, the tax was paid, and the appellant claimed Cenvat credit. Citing a judgment of the Hon'ble Madras High Court, it was established that if a taxpayer pays tax under a misconception and is entitled to certain credits, such availing of benefits cannot be termed illegal. Therefore, the demand for reversing the Cenvat credit and imposing a penalty was set aside as the payment was not disputed, and no evidence of fraud or willful misstatement was found.

In conclusion, the Tribunal allowed the appeal filed by the appellant, granting consequential relief. The judgment emphasized that the appellant could not be asked to reverse the Cenvat credit availed on tax paid under Reverse Charge basis when the payment was undisputed. Additionally, the imposition of a penalty under section 11AC of the Act was deemed unwarranted due to the lack of evidence supporting fraud or willful misstatement by the appellant.

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