Cenvat credit denial overturned as Rule 4(4) inapplicable without capital goods claim

CESTAT Ahmedabad allowed appellant's appeal regarding cenvat credit denial. The tribunal held that cenvat credit cannot be denied solely for non-filing of ST-3 returns, as appellant had not claimed credit on capital goods, making Rule 4(4) inapplicable. The demand under advertising service was set aside since adjudicating authority confirmed it under different category (selling advertisement space), and wrong categorization cannot sustain demand for pre-July 2012 period when service categories were statutory. Penalty above Rs. 4,78,239 was set aside as appellant had paid admitted service tax with interest and 15% penalty.

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Issues Involved:

1. Whether the demand of Rs. 4,12,476/- is time-barred and whether it is sustainable given the incorrect classification of service in the show cause notice.
2. Whether the appellant is eligible for Cenvat credit amounting to Rs. 15,80,877/-.
3. Whether the penalty should be restricted to 15% of the total amount.

Detailed Analysis:

1. Time-Barred Demand and Incorrect Classification:

The first issue pertains to the demand of Rs. 4,12,476/-. The appellant argued that the demand is time-barred as it relates to the extended period from 01.04.2012 to 30.06.2012, with the show cause notice issued on 17.05.2017. Furthermore, the demand was initially classified under "advertising agency" services in the show cause notice but was confirmed under "selling of space for advertisement." The tribunal found that the demand was indeed raised under the wrong category in the show cause notice, and as per established legal precedents, a demand cannot be sustained if confirmed under a different category than proposed. Therefore, the demand of Rs. 4,12,476/- was set aside on this ground alone, without addressing the issue of limitation.

2. Eligibility for Cenvat Credit:

Regarding the eligibility for Cenvat credit of Rs. 15,80,877/-, the appellant contended that they did not avail Cenvat credit on capital goods, thus Rule 4(4) of the Cenvat Credit Rules, 2004, was not applicable. The tribunal agreed, stating that the appellant had not taken Cenvat credit on capital goods, and the denial of credit on this basis was incorrect. Additionally, the tribunal addressed the non-filing of ST-3 returns, concluding that procedural lapses like non-filing should not deprive the appellant of their statutory rights to Cenvat credit. The tribunal cited multiple judgments supporting the view that substantial rights cannot be denied due to procedural infractions. Consequently, the appellant was deemed eligible for the Cenvat credit of Rs. 15,80,877/-.

3. Penalty Restriction:

On the issue of penalty, the appellant sought restriction to 15% of the total amount, arguing that they had already paid the service tax along with interest and a 15% penalty. The tribunal examined Section 78(1) of the Finance Act, which provides for a reduced penalty of 15% if the service tax and interest are paid within 30 days of the notice or order. Given that the appellant complied with these conditions, the tribunal upheld the penalty of 15% amounting to Rs. 4,78,239/- and set aside any additional penalty.

Conclusion:

- The appellant is eligible for Cenvat credit of Rs. 15,80,877/-.
- The demand of Rs. 4,12,476/- is set aside due to incorrect classification.
- Penalty over and above Rs. 4,78,239/- is set aside.
- The appeals are partly allowed as per these terms.

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