Wrongly availed CENVAT credit of Rs. 64,698 reversed with interest negates credit availment under Notification 1/2006

CESTAT Chandigarh allowed the appeal where the appellant had wrongly availed CENVAT credit of Rs. 64,698/- on input services while claiming abatement under Notification 1/2006 dated 01.03.2006, which prohibited such credit availment. The appellant admitted the error by newly appointed staff unfamiliar with the notification and subsequently reversed the credit with interest, informing the department. Following SC precedent in Chandrapur Magnet Wires, the tribunal held that reversing wrongly availed credit with interest amounts to no credit being availed, making the impugned order unsustainable in law.

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Issues involved:
The issues involved in the judgment are the demand of service tax, interest, and penalties confirmed by the Commissioner of Central Excise, Service Tax, Ludhiana against the appellant for wrongly claiming abatement and availing Cenvat Credit on input services.

Issue 1: Demand of service tax, interest, and penalties:
The appellant, engaged in providing services under the category of "Construction of Complex," was alleged to have wrongly claimed abatement and availed Cenvat Credit on input services. The show cause notice sought a demand of service tax amounting to Rs. 77,74,607/- for the period from 18.4.2006 to 30.09.2008. The Adjudicating Authority confirmed the demand along with interest and penalties, leading to the present appeal.

Details:
The appellant contended that the demand was unsustainable as they had reversed the wrongly availed Cenvat Credit on input services of Rs. 64,698/- along with interest. They argued that reversing the credit had the effect as if no credit had been availed, citing relevant legal precedents. The appellant also highlighted that the benefit of abatement under Notification 1/2006-ST cannot be denied based on availing Cenvat Credit, as upheld in various decisions by Tribunals and High Courts.

Issue 2: Imposition of penalties under Section 76 and 77:
The appellant's counsel argued against the imposition of penalties under Section 76 and 77, citing a decision by the Hon'ble Punjab and Haryana High Court in support of their position.

Details:
The appellant's counsel contended that there was no malafide intention in availing the credit, as the filing of statutory returns regularly reflected the facts of Cenvat Credit and abatement. They argued that the penalties should not be imposed based on the circumstances of the case and the legal precedent provided by the Hon'ble Punjab and Haryana High Court.

Judgment:
After considering the submissions of both parties and the material on record, the Tribunal found that the appellant had wrongly availed Cenvat Credit on input services due to a mistake by their staff. However, the appellant subsequently reversed the credit along with interest, which was deemed to nullify the initial credit availed. Citing legal precedents, including a decision by the Hon'ble Supreme Court, the Tribunal held that the demand based on denial of abatement under Notification 1/2006-ST was not sustainable in law. Therefore, the impugned order was set aside, and the appeal of the appellant was allowed with consequential relief, if any, as per law.

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