2013 (3) TMI 632 - HC - Service Tax

the services digital signature certification is not liable to levy itself would mean it is not a service which can be called as exempted services. Appellant could have entertained a bonafide belief as to that a non-taxable services would not fall under the category of exempted services .

Summary

Issues:
Improper utilization of Cenvat Credit exceeding 20% for service tax liability on digital signature certification services, applicability of penalties under Section 76 and 78 of the Finance Act, 1994, and the issue of limitation regarding the demand raised.

Analysis:
The appellant, a registered service provider, was engaged in providing taxable services including online information and data base access and digital signature certification services. The appellant utilized Cenvat Credit of service tax for payment of service tax liability on taxable output services, exceeding the permissible 20% limit for the period of October 2005 to September 2007. A show cause notice was issued for improper utilization of Cenvat Credit, demanding an amount of Rs. 51,85,498/- along with interest and penalties. The appellant contended that digital signature certification services were non-taxable and not exempted services based on CBEC circulars, invoking the principle of ejusdem generis. The appellant argued that the demand was time-barred due to regular filings and audits, and penalties should not apply as the tax liability was paid through Cenvat Credit.

The Departmental Representative cited a similar case to support the penalties, emphasizing the correctness of the adjudicating authority's decision. The appellant rebutted, highlighting differences in the cited case and asserting that penalties were unwarranted as there was no intentional evasion of tax, given the sufficient Cenvat Credit balance. The High Court found that the appellant contravened Cenvat Credit Rules by using the entire credit for tax liability, exceeding the permissible limit. However, considering the appellant's belief regarding the classification of services and the absence of intentional evasion, the Court set aside the penalties under Section 76 and 78 of the Finance Act, 1994, invoking Section 80 for a justifiable cause.

In conclusion, the High Court allowed the appeal partially, directing the lower authorities to allow the appellant to avail Cenvat Credit for the amount paid in cash, and setting aside the penalties imposed under Section 76 and 78 of the Finance Act, 1994, considering the appellant's reasonable belief and the peculiar circumstances of the case.