2023 (11) TMI 886 - AT - Central Excise

Cenvat Credit reversal demand set aside after appellant already reversed credit under Rule 6

CESTAT Allahabad allowed the appeal and set aside the impugned order confirming demand for reversal of Cenvat Credit. The appellant had provided services ... Validity of confirmation of demand towards reversal of Cenvat Credit - - Benefit of exemption - confirmation of demand against services provided to National Financial Corporation which was not listed in schedule to Section (3) of United Nations (Privileges and Immunities) Act, 1947 - HELD THAT:- Tribunal while deciding the appeal for earlier period has stated In para 7 of M/S ICRA MANAGEMENT CONSULTING SERVICE LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE & S.T., GHAZIABAD [2019 (3) TMI 1230 - CESTAT ALLAHABAD] demand upholding the reversal of credit of Rs 2,12,309 the penalty imposed equal to this amount has been set aside. Appellant vide his letter dated 07/11/2023 informs that they has reversed the Cenvat credit amounting to Rs.2,65,723/- in terms of provisions of Rule 6 of the Cenvat Credit Rules, 2004. Further, it is informed that the said reversal of credit had already been intimated to the Service Tax Department vide letter(s) dated 29.06.2015 and 23.06.2016. However it is also noted that taking note of the above revenue has not given any demand in respect of this amount in the present statement of demand, nor any penalty has been imposed corresponding to this amount. There are no reason to differ from the above order, as the show cause notice also do not give any ground except that it was an statement of demand on the basis of earlier show cause notice. Impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether services rendered to the International Finance Corporation (IFC) during the period January 2015 to March 2016 were exempt from service tax under the notification granting exemption to specified international organizations, having regard to the date on which IFC was declared a specified international organization under Section 3 of the United Nations (Privileges and Immunities) Act. 2. Whether prior judicial decisions (including a Tribunal decision treating IFC as covered by the exemption and another Tribunal decision under challenge in higher court) are binding or applicable to the facts, and if so, whether they should be followed, distinguished or disregarded. 3. Whether reversal of Cenvat credit effected by the assessee relieves it from liability and whether any penalty relating to such reversed credit can be sustained. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Applicability of exemption to services provided to IFC for Jan 2015-Mar 2016 Legal framework: The relevant legal matrix comprises (a) the notification granting exemption to services provided to specified international organizations; (b) Section 3 of the United Nations (Privileges and Immunities) Act, which provides for declaration of specified international organizations by notification of the Central Government; and (c) the fiscal code provisions creating liability, recovery and interest (notably Sections 73 and 75 of the Finance Act, 1994, as applied to service tax). Precedent treatment: The adjudicating and appellate authorities referred to Tribunal decisions addressing whether services to entities such as IFC fall within the scope of exemption; some decisions treated such entities as covered, others distinguished them on the ground that IFC was a member of the World Bank Group and not the World Bank per se. One relevant Tribunal decision treating IFC as covered was relied on by the appellant; another judgment which extended exemption was noted but identified as subsequent or distinguishable. Interpretation and reasoning: The Court applied the principle that exemption notifications must be construed strictly and according to their language. It emphasized that a declaration under Section 3 of the UN Act took effect only from the date specified in the relevant notification (13.07.2016) and there was no provision for retrospective effect. Consequently, services provided to IFC before that date (i.e., January 2015-March 2016) did not fall within the class of services exempted by the notification. The Tribunal further observed that the statutory declaration named IFC only on 13.07.2016 and therefore the exemption could not be read back to cover earlier periods absent explicit retrospective language. Ratio vs. Obiter: Ratio - the exemption conferred by a notification under Section 3 of the UN Act applies prospectively from the date of the declaration in the absence of explicit retrospective effect; therefore services provided to IFC prior to its declaration date are taxable. Obiter - factual distinctions as to organizational structure (e.g., IFC as member of World Bank Group versus part of World Bank) support the interpretation but operate as explanatory remarks distinguishing precedents. Conclusion: The Tribunal upheld confirmation of service tax, interest and penalty to the extent attributable to services provided to IFC for the period January 2015-March 2016, holding the exemption unavailable for that period because IFC was declared a specified international organization only w.e.f. 13.07.2016. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Treatment of prior judicial decisions and their applicability Legal framework: Principles of judicial precedent and precedential value of Tribunal decisions; where conflicting decisions exist, subsequent or higher court adjudication and appeals pending in higher courts affect the weight accorded to a decision; decisions are to be followed if directly applicable unless distinguishable on facts or law. Precedent Treatment (followed/distinguished): The Tribunal considered an earlier Tribunal decision that had set aside similar demands by treating IFC (or analogous entities) as covered by the exemption. However, it noted another Tribunal decision (Coastal Gujarat) was under challenge before the Apex Court and therefore not of final authority; accordingly the ratio of that decision was not treated as binding. A specific earlier Final Order of this Tribunal favorable to the appellant (Final Order No.70376/2019) was noted and ultimately applied in relation to a separate aspect (reversal of credit), and the impugned appellate order was found to have been decided without taking that Final Order into account. Interpretation and reasoning: The Tribunal distinguished precedent where organizational status (IFC as member of World Bank Group distinct from World Bank) and the timing of the statutory declaration made a material difference. The Tribunal also recognized that a decision pending before the Apex Court cannot be treated as settled law for purposes of denying relief. Conversely, where this Tribunal had earlier issued a final order in favor of the assessee on overlapping issues, that final order was found persuasive and applicable to aspects of the present appeal. Ratio vs. Obiter: Ratio - decisions which are final and directly on point should be applied; decisions under challenge in higher courts or distinguishable on material facts may be disregarded or treated as non-binding. Obiter - broad statements about organizational inclusion beyond the specific statutory timeline were explanatory and not binding in the face of differing factual matrices. Conclusion: The Tribunal declined to follow the non-final Tribunal decision under appeal to the Apex Court and distinguished other decisions based on the factual point of the effective date of declaration; it applied its own prior final order where directly applicable and set aside the impugned order insofar as it ignored that precedent. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Reversal of Cenvat credit and associated penalty Legal framework: Provisions permitting reversal of Cenvat credit (including Rule 6 of the Cenvat Credit Rules, 2004), and the statutory scheme for levy of penalty where irregular credits are availed; relevant statutory provisions for demand and penalty under the Finance Act. Precedent Treatment: The Tribunal relied on its prior Final Order holding that where the assessee had reversed Cenvat credit and paid interest prior to issuance of show cause notice, the revenue should not have issued a show cause notice in respect of that amount and penalty corresponding to the reversed credit should not be sustained. Interpretation and reasoning: The Tribunal noted that the assessee had effected reversal of Cenvat credit (initially recorded as Rs.2,12,309 in one order and notified as Rs.2,65,723 by subsequent communication) and had intimated the reversal to the department before issuance of the show cause notice. Given the reversal and payment of interest, the Tribunal held that issuance of show cause notice and imposition of penalty in respect of the reversed credit was not justified. The present statement of demand did not, in any event, include a demand for the later-asserted reversal amount nor did it impose penalty corresponding to it. Ratio vs. Obiter: Ratio - voluntary reversal of inadmissible Cenvat credit and payment of interest prior to show cause notice precludes the imposition of penalty and the issuance of a show cause notice for that amount. Obiter - numerical discrepancies in the amounts of reversal noted in different communications are factual and do not alter the legal principle that prior reversal mitigates penal liability. Conclusion: The Tribunal upheld the prior final order relieving the assessee from penalty to the extent of the reversed Cenvat credit and found no reason to sustain demand/penalty in respect of such reversed credit; the impugned appellate order was set aside insofar as it failed to follow that prior order. OVERALL CONCLUSIONS AND RELIEF The Tribunal allowed the appeal in part: it affirmed that services to IFC prior to its declaration date (13.07.2016) were taxable and supported confirmation of demand, interest and penalty for that period; it declined to follow a non-final contrary Tribunal decision under appeal to a higher court; and it set aside the impugned appellate order to the extent it ignored this Tribunal's prior final order concerning reversal of Cenvat credit and related penalty, thereby granting relief on that aspect.