2006 (12) TMI 56 - AT - Service Tax

Credit utilisation Revenue contended that the appellant exceeded the limit of utilisation of credit and accordingly demands were made alongwith interest Commissioner rejected the revenue contention and set aside demand and penalty

Summary

Issues Involved:
1. Utilization of Input Service Tax Credit under Rule 3(5) of Service Tax Credit Rules, 2002.
2. Imposition of penalty under Section 76 of the Finance Act, 1994.
3. Levy of interest under Section 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Utilization of Input Service Tax Credit under Rule 3(5) of Service Tax Credit Rules, 2002:

The appellants accumulated Input Service Tax Credit of Rs. 16,46,949/- from 14-5-2003 to 31-3-2004 and utilized Rs. 4,94,494/- (35% of total service tax payable) for the period from November 2003 to March 2004. They argued that Rule 3(5) does not specify that 35% of the credit should be used on each occasion of service tax payment, and there is no time frame for utilizing the credit. The Tribunal noted that Rule 3(5) restricts utilization to 35% of the service tax payable on output services, and there is no rule stating that credit accumulated during a month must be used in the same month. The Tribunal concluded that the utilization of credit to the extent of Rs. 4,94,494/- during December 2003 to March 2004 was in accordance with Rule 3(5).

2. Imposition of penalty under Section 76 of the Finance Act, 1994:

The appellants contended that Section 76 applies only when there is a failure to pay service tax, not when there is an issue with the utilization of credit. They cited the Tribunal decision in R.B. Bahutule v. CCE, Mumbai, which held that Section 76 applies to those who fail to pay service tax beyond the due date. The Tribunal agreed with the appellants, stating that since there was no dispute about the payment of service tax, the imposition of a penalty under Section 76 was not justified.

3. Levy of interest under Section 78 of the Finance Act, 1994:

The appellants argued that interest is only liable when there is a delay in payment of service tax under Section 78, and since they had paid the service tax correctly, no interest should be levied. The Tribunal noted that there was no provision under Section 68 for the demand of interest under Section 78 and concluded that the demand for interest was not correct in law.

Conclusion:

The Tribunal allowed the appeal with consequential relief, stating that the utilization of credit was in order and in consonance with Rule 3(5) of the Service Tax Credit Rules, 2002. The imposition of any penalty was deemed unnecessary, and no interest could be levied since the appellants had discharged their duty liability correctly.