Tribunal Confirms Tax Demand, Reverses CENVAT Credit for Exempt Services at Chennai Airport, Waives Penalty Due to Lack of Intent.

The Tribunal upheld the demand of Rs. 42,81,673/- plus interest, confirming the reversal of CENVAT credit for services deemed exempted, including works contract services at Chennai Airport. However, it waived the penalty under Rule 15 of the CENVAT Credit Rules, 2004 r/w section 78 of the Finance Act, 1994, due to lack of evidence of intent to evade tax. The appeal was disposed of on 01.02.2024, affirming the demand but setting aside the penalty.

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Issues Involved:
The appeal against the impugned Order in Appeal upholding the demand confirmed in the Order in Original and rejecting the appeal. The main issue revolves around the reversal of CENVAT credit attributed to common input services used in taxable and exempted services.

Reversal of CENVAT Credit:
The appellant availed CENVAT credit on common input services used for providing both taxable and exempted services, including works contract services at Chennai Airport. The appellant argued that the works contract services are excluded from the definition of exempted services under section 65(105)(zzzza) of the Finance Act, 1994, hence Rule 6(3) of the CENVAT Credit Rules, 2004 should not apply. However, the Tribunal found that exempted services include those on which no service tax is leviable under the Act. As service tax was not leviable on the works contract service provided by the appellant, these services were rightly considered exempted. Thus, the demand of Rs. 42,81,673/-, equal to 6% of the value of exempted services, was upheld along with interest.

Penalty Imposition:
Regarding the penalty imposed under Rule 15 of the CENVAT Credit Rules, 2004 r/w section 78 of the Finance Act, 1994, the appellant had already paid the demanded amount. The Tribunal noted the absence of evidence establishing an intention to evade tax payment through suppression of facts. Consequently, the Tribunal invoked the provisions of section 80 of the Finance Act, 1994, to waive the penalty of Rs. 42,81,673/-.

Disposition:
The Tribunal upheld the demand confirmed in the impugned order along with interest, while setting aside the penalty imposed under Rule 15 of the CENVAT Credit Rules, 2004 r/w section 78 of the Finance Act, 1994. The appeal was disposed of accordingly on 01.02.2024.

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