CENVAT credit on courier licence services reversed before use - demand and penalty under r.15(5) CCR set aside

Whether CENVAT credit availed for service tax on a courier licence was legally taken and liable to demand and penalty. The tribunal applied the principle that reversal of unutilized CENVAT credit before utilization amounts to non-availment; therefore a subsequent show cause notice demanding the credit and levying penalty under r.15(5) CCR, 2004 read with s.11AC, CEA, 1944 could not stand. Reasoning: evidence showed credit was reversed prior to use and audit, so there was no surviving credit to be recovered. Outcome: demand and penalty confirmed by the adjudicating authority were set aside; appeal allowed in part.

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Issues: (i) Whether availment of CENVAT credit of service tax paid on licence for providing courier service is tenable and whether demand and penalty confirmed by the adjudicating authorities are sustainable.

Analysis: The facts show credit was availed on 13.10.2013 and reversed on 12.11.2013 before any utilization. Rule 14 of the Cenvat Credit Rules, 2004 provides for recovery where CENVAT credit has been taken and utilized wrongly or erroneously refunded; the rule thus contemplates utilization as a precondition for recovery proceedings under its scheme. Authorities and precedents establish that reversal of unutilized CENVAT credit amounts to non-taking of credit. The question of eligibility of the service-credit when not utilized is distinct from a determination where credit has been utilized. Where credit is reversed prior to utilization, issuance of a show cause notice under Rule 14 and imposition of penalty under Rule 15 are not sustainable to recover the reversed amount. Relevant provisions on common pool and cross-utilization (Rule 3(1) and Rule 3(4)) indicate that classification as manufacturer or service provider does not create separate criteria for taking CENVAT credit under the Rules.

Conclusion: The demand for CENVAT credit and the penalty insofar as they relate to credit reversed before utilization are not sustainable and are set aside in favour of the assessee.

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