2025 (10) TMI 450 - AT - Central Excise

Appeal allowed: Cenvat credit payments predated Section 73(4A) proceedings, 1% penalty indicated settlement, Rule 9(1)(bb) disallowance unsustainable, interest recovery dropped

M/s. Pioneer Jellice India Private Limited Versus Commissioner of GST and Central Excise, Puducherry (Vice-Versa)

CESTAT CHENNAI - AT allowed the appeal and set aside the impugned order, holding that Cenvat credit claimed by the assessee is admissible. The Tribunal ... Availment of the Cenvat Credit pursuant to the supplementary invoice of output service provider - Ravene contended that service tax paid by the service provider on account of suppression, wilful misstatement, fraud, etc., with an intention to evade duty - credit barred in terms of Rule 9(1)(bb) of the CCR, 2004 - dropping of proceeding for the recovery of interest by the Commissioner (Appeals) - HELD THAT:- On perusal of the facts and relevant provisions of Section 73(4A), it is observed that the very fact that payment has been made even before such proceeding was initiated alleging suppression of fact, wilful misdeclaration etc., would only support the view that the amount was not paid consequent upon the invocation of such ingredients which would disentitle the credit to the Assessee. As rightly submitted by the Assessee, the fact that the penalty itself was restricted to 1% would also suggest that it was not the intention of the government to equate such payment as a payment made pursuant to proceedings initiated as a result of confirmation of the ingredients such as suppression of fact or wilful misdeclaration etc., which are contained in Section 73 of the Act. The reliance placed on the decision of M/s. Shiv Lifters v. CCE, Vadodara [2017 (12) TMI 93 - CESTAT AHMEDABAD], which held that Section 73(4A) is in the nature of settlement of dispute and as per the said provision if the amount of service tax along with interest and 1% penalty during the period of default has been paid, in that circumstances, proceedings are to come to an end. Further that the allegation of fraud, collusion, wilful suppression of facts or nonpayment of service tax with intent to evade payment of service tax under the Act or Rules thereunder, cannot be held that these ingredients are there, and that in the absence of these ingredients, in terms of Rule 9(1)(bb) of the CCR, 2004, Cenvat Credit cannot be denied to the assessee. Further, it is observed that the issue of renting of immovable property service was a highly contentious issue which was the subject matter before various judicial fora including High Courts and this Tribunal, across the country. In these circumstances the allegation of suppression or wilful misstatement cannot sustain. Dropping of proceeding for the recovery of interest by the Commissioner (Appeals) - HELD THAT:- It is to be noted that as it is held that the Cenvat Credit to be eligible the question of demanding interest thereon would not arise. It has also been observed that during the impugned period, the Assessees had sufficient balance of credit, which was more than the amount of credit alleged to have been wrongly availed, would suggest, that they have not utilised the credit and no prejudice could have been caused to the exchequer. It is only on utilization of the wrong credit, if substantiated, that the interest liability can be imposed. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether Cenvat credit can be availed by a manufacturer on the basis of a supplementary invoice issued by the provider of output service pursuant to payment made under Section 73(4A) of the Finance Act, 1994. 2. Whether a payment of service tax with interest and 1% penalty under Section 73(4A) necessarily implies that the underlying recovery was on account of fraud, collusion, wilful mis-statement or suppression of facts, thereby triggering the exception in Rule 9(1)(bb) of the Cenvat Credit Rules, 2004 that prohibits Cenvat credit. 3. Whether interest for delayed payment of Cenvat credit is exigible where the assessee maintained an unutilised Cenvat balance in excess of the credit in question during the relevant period. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility of Cenvat credit on supplementary invoices after payment under Section 73(4A) Legal framework: Rule 9(1)(bb) of the Cenvat Credit Rules, 2004 permits Cenvat credit on the basis of a supplementary invoice issued by a provider of output service, subject to an exception where the additional tax became recoverable due to non-levy/non-payment/short-levy/short-payment by reason of fraud, collusion, wilful mis-statement or suppression of facts or contravention of provisions of the Finance Act or rules thereunder with intent to evade payment of service tax. Section 73(4A) of the Finance Act, 1994 (as in force for the period) allows a person, during audit/investigation/verification, to pay service tax with interest and a 1% monthly penalty (capped at 25%) before notice and thereby preclude initiation of proceedings for the amount so paid; proviso permits the officer to determine any remaining amount. Precedent treatment: The Tribunal relied on prior decisions holding that payments under Section 73(4A) operate as settlement of the dispute and do not ipso facto establish the ingredients of fraud, collusion, wilful suppression or intent to evade required by Rule 9(1)(bb). Decisions holding that supplementary invoices issued after settlement under Section 73(4A) do support Cenvat credit were followed. Interpretation and reasoning: The Court examined the temporal and substantive effect of Section 73(4A) and concluded that a voluntary payment under that provision, made before initiation of proceedings, indicates settlement and closure of the disputed liability rather than adjudicated findings of fraud or suppression. The limited penalty of 1% in Section 73(4A) supports the legislative intent that such payments are not equivalent to findings under Section 73 based on fraud, collusion or wilful misstatement. The Tribunal observed that Rule 9(1)(bb)'s bar applies where the additional amount became recoverable on account of specified malfeasance; where payment is made under Section 73(4A) prior to any such adjudication, those ingredients are not established. Ratio vs. Obiter: Ratio - Payment under Section 73(4A) prior to initiation/conclusion of proceedings does not constitute recovery on account of fraud, collusion, wilful mis-statement or suppression of facts for the purpose of Rule 9(1)(bb); therefore Cenvat credit on supplementary invoices issued after such payment is permissible. Obiter - Observations on the nature of Section 73(4A) as settlement and on penalty quantum reinforcing settlement character. Conclusions: Cenvat credit taken on the basis of supplementary invoices evidencing service tax paid under Section 73(4A) is legally admissible; the Revenue's denial of credit under Rule 9(1)(bb) cannot be sustained where payment was made under Section 73(4A) before initiation of proceedings establishing fraud or suppression. Issue 2: Whether payment under Section 73(4A) implies the presence of ingredients (fraud, collusion, wilful mis-statement or suppression) contemplated in Rule 9(1)(bb) Legal framework: Rule 9(1)(bb) contains the exception disallowing credit where additional tax became recoverable due to fraud, collusion, wilful misstatement or suppression of facts (or contravention of Finance Act/rules) with intent to evade tax. Section 73(4A) permits payment to conclude proceedings where true and complete details are available in specified records. Precedent treatment: Reliance placed on authoritative decisions which held that payment under Section 73(4A) is akin to settlement and does not amount to a finding of the statutory ingredients listed in Rule 9(1)(bb); such decisions were followed and applied. Interpretation and reasoning: The Tribunal emphasized that Section 73(4A) operates when true and complete details are available in specified records and allows a person to pay tax, interest and a limited penalty before notice; this procedural posture indicates absence of adjudicated malfeasance. The imposition of only 1% penalty in that provision was cited as indicia that the legislature intended a conciliatory mechanism, not a punitive determination equivalent to a finding of fraud or suppression. Consequently, payment under Section 73(4A) cannot be equated with recovery on account of the specified malfeasance in Rule 9(1)(bb) unless those ingredients are independently established by adjudication. Ratio vs. Obiter: Ratio - Section 73(4A) payments do not automatically import the existence of fraud, collusion, wilful mis-statement or suppression for the purposes of Rule 9(1)(bb); the exception in Rule 9(1)(bb) applies only when such ingredients are proven or formed the basis of recovery. Obiter - Observations that contentious nature of the underlying service classification (renting of immovable property) across forums weakens allegations of suppression/wilful misstatement. Conclusions: The Revenue cannot treat payments made under Section 73(4A) as establishing the exception in Rule 9(1)(bb) in the absence of independent findings of fraud, collusion, wilful mis-statement or suppression of facts; therefore credit taken on supplementary invoices after such payment is not barred by Rule 9(1)(bb). Issue 3: Exigibility of interest where Cenvat balance remained unutilised in excess of the alleged wrong credit Legal framework: Rule 14 of the Cenvat Credit Rules, 2004 read with Sections 11A(1) and 11AA of the Central Excise Act, 1944 govern recovery and interest; interest liability typically arises upon utilisation of wrong credit prejudicing the exchequer. Precedent treatment: The Tribunal applied precedent holding that interest is exigible only upon utilisation of wrongly availed credit causing prejudice to the exchequer; retention of a sufficient unutilised Cenvat balance militates against imposition of interest. Interpretation and reasoning: The Tribunal noted the assessee maintained a Cenvat balance greater than the amount of credit in dispute during the relevant period and there was no evidence of utilization of the disputed credit to the detriment of the exchequer. Given the absence of prejudice and in light of precedents, interest demand was not sustainable. The Tribunal also observed that since it held the credit admissible (Issue 1), the question of interest did not arise further. Ratio vs. Obiter: Ratio - Interest for wrong Cenvat credit can be imposed only where the wrong credit has been utilised such that prejudice to the exchequer arises; unutilised credit in excess negates interest liability. Obiter - Reference to prior authority applied for the proposition. Conclusions: The Revenue's appeal seeking interest is dismissed; interest demand cannot be sustained where disputed credit was not utilised and the assessee maintained an adequate unutilised Cenvat balance. Cross-references and Related Points 1. Issues 1 and 2 are interlinked: admissibility of credit on supplementary invoices flows from the conclusion that Section 73(4A) payments do not ipso facto satisfy the Rule 9(1)(bb) exception. See Issue 1 (ratio) and Issue 2 (interpretation). 2. Issue 3 is contingent on Issues 1-2: having held credit admissible, interest question becomes redundant; alternatively, even if credit were disallowed, interest would only be payable upon demonstrated utilisation causing prejudice.