2023 (5) TMI 1454 - AT - Service Tax

Show-cause proceedings void where appellant already reversed inadmissible CENVAT credit on SAD with interest and appeal allowed

Appellant had already reversed the inadmissible CENVAT credit on SAD along with interest, as recorded by the adjudicating authority; consequently the ... Availment of CENVAT credit on SAD - inadmissible output service providers in terms of proviso to Sub-Rule (VIIA) of Rule 3 of Cenvat Credit Rules, 2004 - appellant seeks to reverse the cenvat credit along with interest and to impose penalty - HELD THAT:- As it is evident from the records that the appellant has already reversed the cenvat credit along with interest, which is recorded by the Adjudicating Authority in the impugned order. Therefore, the proceedings against the appellant itself was not required. The only issue in the show-cause notice is the reversal of inadmissible cenvat credit. Therefore, the issue of figure shown in the revised return of taxable service is less or more is not the issue before us. As it is apparently clear that the appellant has already reversed the cenvat credit along with interest. Therefore, the impugned proceedings are not sustainable against the appellant and are void ab-initio. The impugned order is set aside and the appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether show-cause proceedings under service tax law were maintainable where the assessee had, prior to issuance of the show-cause notice, reversed inadmissible CENVAT credit on Special Additional Duty (SAD) and paid interest. 2. Whether the fact of a revised ST-3 return showing different taxable value affects the question of maintainability of proceedings when reversal and interest payment are recorded in the departmental records. ISSUE-WISE DETAILED ANALYSIS Issue 1: Maintainability of show-cause proceedings where CENVAT credit and interest were reversed/paid before issuance of notice Legal framework: Mining Service is a taxable service; CENVAT credit rules govern admissibility and reversal of credit. Proviso to Sub-Rule (VIIA) of Rule 3 of the Cenvat Credit Rules, 2004 excludes SAD credit for output service providers. Rule 14 of the Cenvat Credit Rules, 2004 provides mechanism for reversal of credit. Section 73(3) of the Finance Act, 1994 (as relied upon by the appellant) bears on the effect of payment/reversal prior to issuance of a notice and the consequent need for issuing a show-cause notice. Precedent treatment: No prior judicial precedent was invoked or relied upon in the impugned order; the Court's decision rests on statutory scheme and the admitted facts as recorded by the adjudicating authority. Interpretation and reasoning: The adjudicating authority's own findings (reproduced in the impugned order) establish that the assessee (i) filed an ST-3 return for October 2008-March 2009, (ii) filed a revised ST-3 reducing the claimed capital goods credit, (iii) effected reversal entries amounting to specific sums under Rule 14 for SAD-related credit during March 2009, and (iv) paid a portion in cash and paid interest by e-payment. Those facts demonstrate that the inadmissible credit and interest were reversed/paid before issuance of the show-cause notice. Given that the only allegation in the notice related to reversal of the inadmissible credit, and the reversal along with interest had already been effected and recorded, the necessity to issue and maintain the show-cause proceedings ceased to exist. The Tribunal treats the reversal plus interest payment as rendering the proceedings unnecessary and thereby void ab initio. Ratio vs. Obiter: Ratio - Where the departmental record, as recorded by the adjudicating authority, incontrovertibly shows that inadmissible CENVAT credit and the corresponding interest were reversed/paid prior to issuance of a show-cause notice, further adjudicatory proceedings addressing only that reversal are not maintainable; such proceedings are void ab initio. Conclusion: The impugned adjudication concerning reversal of inadmissible CENVAT credit and imposition of interest/penalty was not sustainable because the reversal and interest payment had been effected and recorded prior to issuance of the show-cause notice. The proceedings were void ab initio and the order was set aside. Issue 2: Relevance of discrepancy in taxable value between original and revised return to maintainability of proceedings Legal framework: ST-3 returns and revised returns reflect declared taxable value and claimed credits; Rule 7 of the Service Tax Rules, 1994 governs returns. The question is whether a mere discrepancy in return figures prevents treating an antecedent reversal/payment as effectively discharging liability for purposes of maintainability of proceedings. Precedent treatment: No precedent was cited; the Court based its conclusion on factual findings in the impugned order. Interpretation and reasoning: The Tribunal observed that the core issue in the show-cause notice was reversal of inadmissible CENVAT credit (SAD). Whether the revised return reduced the taxable value is immaterial to the narrow question of whether the reversal of inadmissible credit and payment of interest had already occurred and were recorded. The adjudicating authority's own record confirmed reversal entries and interest payment; therefore, the existence of differences between original and revised return figures did not resurrect or justify proceedings aimed solely at obtaining the reversed amounts. Ratio vs. Obiter: Ratio - Discrepancies between original and revised returns do not, by themselves, sustain show-cause proceedings directed solely to recovery of an inadmissible credit where the credit and interest have already been reversed/paid and the reversal/payment is recorded in the departmental file. Conclusion: The issue of whether the revised return showed a lesser taxable value was not determinative of maintainability; because the inadmissible credit and interest had been reversed/paid and were on record, the proceedings could not be sustained on account of return figure discrepancies. Cross-reference See Issue 1 analysis - the finding of recorded reversal and interest payment is the operative fact that determines both issues: it nullifies the need for further proceedings even if return figures differ (Issue 2). Disposition The impugned order confirming demand, interest and penalty on account of alleged irregular CENVAT credit was set aside; the appeal was allowed and consequential relief granted to the appellant.