2023 (5) TMI 971 - AT - Service Tax

Tribunal allows cross-utilization of Cenvat credit for service tax, citing judicial precedents

M/s. Vista Film Packaging (Div. of Huhtamaki PPL Ltd.) Versus Commissioner of CGST & CE, Thane Rural, Mumbai

The Tribunal allowed the appeal, setting aside the order that demanded service tax, interest, and penalties. It held that the appellant could utilize ... Short payment of service tax - Cross utilization of CENVAT Credit - input services - HELD THAT:- With effect from 2004 when Cenvat Credit Rules, 2004 were issued, it was stated clearly that cross utilization of Cenvat credit on inputs, input services is being allowed for payment of central excise duty and service tax. That being so, there are no merits in the submissions made by the Revenue that utilization of Cenvat credit for payment of output service tax liability of the appellant can be faulted with. The issue in the case of M/S ICICI PRUDENTIAL ASSET MANAGEMENT CO. LTD. VERSUS COMMISSIONER OF C.G. ST., MUMBAI EAST [2019 (11) TMI 1466 - CESTAT MUMBAI] was also not in respect of such cross utilization. In para 8 of the said order, the issue is in respect of denial of Cenvat credit and not of the utilization of the said credit. There are no merits in the impugned order, set aside the same and allow the appeal. Issues Involved:1. Demand of Service Tax2. Recovery of Interest3. Imposition of Penalty under Section 774. Imposition of Penalty under Section 785. Utilization of Cenvat Credit for Payment of Service TaxIssue-wise Detailed Analysis:1. Demand of Service Tax:The adjudicating authority confirmed the demand of service tax amounting to Rs. 5,78,214/- under Section 73(2) of the Finance Act, 1994. The appellant utilized Cenvat credits availed on input services related to manufacturing activities for payment of service tax liability on the provision of Supply of Tangible Goods Services. The authority held that there was no nexus between the input services used for manufacturing and the output service of Supply of Tangible Goods, thus the credit utilization was incorrect.2. Recovery of Interest:The order mandated the recovery of interest at the appropriate rate under Section 75 of the Finance Act, 1994. This interest was to be charged on the short payment of service tax due to the incorrect utilization of Cenvat credit.3. Imposition of Penalty under Section 77:A penalty of Rs. 10,000/- was imposed under Section 77 of the Finance Act, 1994, for the failure to correctly discharge the service tax liability electronically through internet banking.4. Imposition of Penalty under Section 78:A penalty equivalent to the service tax amount (Rs. 5,78,214/-) was imposed under Section 78 of the Finance Act, 1994, for contravention of Section 68 read with Rule 6 of the Service Tax Rules, 1994. However, if the service tax and interest were paid within 30 days of the order, the penalty would be reduced to twenty-five percent of the service tax demanded.5. Utilization of Cenvat Credit for Payment of Service Tax:The appellant argued that they paid the service tax by utilizing the Cenvat credit available with them, which was permissible under Rule 3(4) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) upheld the adjudicating authority's decision, stating that the input services had no nexus with the output service of Supply of Tangible Goods and thus could not be utilized for payment of service tax on such services. The appellant cited several judicial decisions supporting the cross-utilization of Cenvat credit, but the Commissioner (Appeals) distinguished these cases from the present one, emphasizing the absence of nexus between input services and output services.Final Judgment:The Tribunal considered the impugned order and the submissions made by both parties. It found that the cross-utilization of Cenvat credit for payment of service tax on output services was allowed under Rule 3(4) of the Cenvat Credit Rules, 2004. The Tribunal referred to several judicial precedents that supported the appellant's position, including decisions by the Bombay High Court and Gujarat High Court, which allowed the utilization of Cenvat credit for payment of service tax on output services. The Tribunal concluded that the utilization of Cenvat credit for payment of service tax liability on Supply of Tangible Goods Services was permissible. Consequently, the Tribunal set aside the impugned order and allowed the appeal.