Penalty and interest - wrongly availed cenvat credit

[Guest]

We were taking CENVAT credit of Service Tax on the basis of billing of expenses against the legal provision of taking the credit on payment basis. This practice was being followed by us till September 2006 and from that period onwards we have started taking the credit on payment basis as is legally permitted. Now since we are aware of the anomaly we would like to rectify by depositing the wrongly taken credit along with interest and penalty (if any). So please advice the way we can do the same as per the provisions of the Service Tax rules in order to avoid any tax scrutiny by the department in the future. Please also advice us in the case of scrutiny by Service Tax dept whether this input (taken wrongly with payment to suppliers) can be disallowed fully by the dept and whether we can claim it (in case of disallowance for the particular period) in the future. If there is any case regarding this issue please also quote the case study.

AI Summary

Company Seeks to Rectify CENVAT Credit Error; Plans to Deposit Wrongly Taken Credit with Interest and Avoid Penalties A company identified that it incorrectly availed CENVAT credit on an accrual basis instead of a payment basis until September 2006. Seeking to rectify this, they plan to deposit the wrongly taken credit with interest and potential penalties. Experts advised that if payments were later made in full, reversal of credit is unnecessary, but interest on early credit should be paid. It was suggested to inform the department via registered post and maintain records for audit. If the differential tax with interest is paid before a show cause notice, penalties may not apply. Proper documentation and communication with the department were recommended to avoid future scrutiny.