Tribunal rules on Cenvat credit formula, upholds penalty for short-payment of service tax.

The Tribunal set aside the demand related to the incorrect formula for reversal of Cenvat credit under Rule 6(3) of CCR 2004, citing that the formula should only consider common Cenvat credit. The penalty imposed for short-payment of service tax under Business Auxiliary Service (BAS) was upheld. The appeals were partly allowed with consequential relief.

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Issues Involved:
1. Incorrect formula adoption for reversal of Cenvat credit under Rule 6(3) of CCR 2004.
2. Short-payment of Service Tax under Business Auxiliary Service (BAS).

Summary:

Issue 1: Incorrect Formula Adoption for Reversal of Cenvat Credit

The appellant, engaged in trading and manufacturing of turbines, was found to have short-paid the amount of Cenvat credit to be reversed under Rule 6(3) of Cenvat Credit Rules (CCR) 2004 for exempted services. The department noticed during an audit that the appellant availed Cenvat credit on common input services but did not apply the correct formula under Rule 6(3A) of CCR 2004, resulting in a short reversal amounting to Rs.6,63,93,170/- for the period 2012-13 to 2014-15. A show cause notice was issued, and the original authority confirmed the demand along with interest and penalties. A subsequent show cause notice dated 16.10.2018 alleged similar non-adoption of the correct formula, proposing a demand of Rs.1,20,76,891/-. The Commissioner (Appeals) upheld the original order.

The Tribunal held that the formula for reversing credit should consider only the total common Cenvat credit and not the total Cenvat credit, including those used exclusively for dutiable goods. This interpretation aligns with several precedents, including CCE v. Reliance Industries Ltd. and Honda Cars India Ltd. The Tribunal set aside the demand based on the incorrect formula, referencing CBEC Circulars clarifying that Rule 6 applies only to common inputs and input services.

Issue 2: Short-Payment of Service Tax Under BAS

The appellant was also found to have short-paid service tax under the Business Auxiliary Service (BAS) category. The appellant contested only the penalty imposed, having paid the service tax when pointed out by the department. The original authority imposed a penalty of Rs.42,989/-, with an option to pay a reduced penalty. The Tribunal upheld the penalty, finding no grounds to set it aside.

Conclusion:

The Tribunal modified the impugned orders by setting aside the demand related to the incorrect formula for reversal of Cenvat credit under Rule 6(3) of CCR 2004. The appeal concerning the penalty under BAS was upheld. The appeals were partly allowed with consequential relief.

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