Eligiblity of Penalty on Volunteer Service Tax Credit Reversal

[Bhausaheb Gole]

Dear Experts:

We are manufacturer of exciseble goods. We have taken Service Tax credit on our Input services consumed in manufacturing process. after some days we knews that in internal audit some credit are inadmisible & we reversed without utilisation,, after in Audit EA2000 it has pointed out & Auditor raise the query to pay the penalty on reversal amount,

Please advice if is there any related case laws..

[KASTURI SETHI]

Credit taken and reversed amounts to credit not taken. There are case laws. Since you did not use the same ( Having sufficient balance of credit more than that of amount involved), no interest is chargeable and no penalty is impossible. Case law will be posted today.

[DR.MARIAPPAN GOVINDARAJAN]

Once CENVAT credit is reversed on pointing out audit interest is also liable to pay by you. If CENVAT credit is reversed and interest is also paid no show cause notice is to be issued. One no SCN is issued no penalty can be imposed. This is my view.

[Bhausaheb Gole]

As per my view there is no required to pay the interest on reversal amount, if it is sufficient balance of credit available in our books.

[Bhausaheb Gole]

Dear Experts:

Please give the reference case laws.

[KASTURI SETHI]

2017 (347) E.L.T. 112 (Tri. - Bang.) = 2016 (8) TMI 387 - CESTAT BANGALORECRANES & STRUCTURAL ENGINEERS Versus COMMR. OF C. EX., BANGALORE-I

[KASTURI SETHI]

Dear Querist,

The above case law posted by me is not relevant for you. It was relevant for some other query. It was wrongly posted. Sorry for that.

I am posting Board's Circular and two judgements of the Supreme Court on this very issue. These are as under:-

Textiles and Textile Articles - Reversal of input credit before utilisation amounts to not taking credit for benefit of Notification No. 30/2004-C.E.

Circular No. 858/16/2007-CX, dated 8-11-2007

2007 (215) E.L.T. 3 (S.C.) = 2007 (8) TMI 2 - Supreme Court COMMISSIONER OF C. EX., MUMBAI-I Versus BOMBAY DYEING & MFG. CO. LTD.

2011 (265) E.L.T. 3 (S.C.) = 2011 (2) TMI 6 - Supreme CourtUNION OF INDIA Versus IND-SWIFT LABORATORIES LTD.

[Bhausaheb Gole]

Thank you for your valuable feedback..

[KASTURI SETHI]

Welcome pl. Under the auspices of TMI, experts' mission is to satisfy querists and save them from unnecessary litigation. Correct reply on this forum also saves visitors of this forum from rigours of litigation. Needless to say such number of visitors is not limited. Credit goes to TMI for creating such forum for the welfare of trade and industry.

[Mr Rao]

Dear Sethi Ji,

I am regularly following your replies and found to be apt and relevant to the points raised by the querists. It enriches the knowledge of persons like me. You are doing a great service to trade fraternity and other readers. Thank u sir.

[Himansu Sekhar]

When there is sufficient balance, there will be interest. Rule 14 has specifically mentyioned this. The phase ' availedf oir utiliused' has been replaced by ' availed and utilised'. The decision of the Hon'ble Apex Court in the case of Ind swift ltd. Was based upon the provisions of law prior to amendment. Earlier in the case of Hindustan zinc it was pronounced that no interest is payable when the credit is not utilised.

The rule has become clear with the amendments. No interest is payable if credit is not utilised.

[Himansu Sekhar]

But rule 15 has not been amended. The word 'or' has not been replaced. Hence penalty will be imposed for wrong availment of credit even if there is no utilisation.

The decision of Ind fab has vindicated the department stand

[Himansu Sekhar]

An amendment to my reply. In the first line it should be no interest.

[KASTURI SETHI]

When we say credit reversed amounts to credit not taken, neither Rule 14 nor Rule 15 of Cenvat Credit Rules, 2004 comes into play. Regarding the literal meaning, there is no difference between 'credit taken: and 'credit availed'. Hence neither penalty nor interest is recoverable.

Rule 15 will be invoked only if Rule 14 comes into play.

[Ganeshan Kalyani]

I too would like to thank TMI for having created such a wonderful platform. It brings all the likeminded together. Initially i was a querist in this forum and gradually attempted to post replies. Wherever there was any mistake in my reply, Sri Kasturi Sir would highlight it via personal message. Thanks to TMI because of which i came across such an expert.

Also i have high regards to Sri Rajagopalan Sir, Sri Mariappan Sir, Sri Sanjay Sir, Sri Akash Deep Ji, Sri Mahir S Ji and collegue experts.

I pray that all these experts and those who were active in long past should start participating in the forum and share their knowledge by resolving the queries of the querist and enrich knowledge of the onlookers.

[Bhausaheb Gole]

Really it's a very big platform for us to​ resolve the queries.

Thanks to all experts​.

[KASTURI SETHI]

Dear Sh.Bhaskar Rao Ji,. Thanks a lot for your compliments. Such feedback give us satisfaction and boosts our moral to go ahead.

AI Summary

Reversal of input credit: whether pre utilisation reversal avoids interest and penalty depends on rule wording and guidance.
Whether interest or penalty attaches when input/service tax credit is reversed before utilisation depends on two operative considerations: (1) whether reversal before utilisation constitutes credit not availed so that neither interest nor penalty is triggered, as supported by a departmental circular and referenced judgments; and (2) whether the amended textual provisions and the statutory conditions for interest and penalty nonetheless bring the reversal within interest or penalty liability.