2015 (11) TMI 1604 - AT - Service Tax

Recovery of interest under Section 75 of the Finance Act - imposition of penalty under Rule 7(C) of the Service Tax Rules, 1994 - payment of interest for delayed reversal of cenvat credit - Held that - the credit taken inadvertently has not been utilized by the appellant for payment of service tax on the output services. In absence of non utilization of the irregularly availed cenvat credit, the same will be construed as a mere book entry, for which there is no loss of Revenue to the Government Exchequer. Interest is compensatory in character and the same is required to be paid when there is delay in payment of the principal amount. In the present case, since admittedly there is no delay in payment of service tax, I am of the view that provisions of Rule 14 of the Cenvat Credit Rules, cannot be invoked for payment of interest. I find force in the submissions of the Ld. DR for the Revenue with regard to imposition of penalty under Rule 7(C) of the Service Tax Rules, 1994 to the effect that filing of revised return should be considered as the date of filing of return for determination of the quantum of penalty. Considering the fact that penalty has been levied under Rule 7(C), I am of the view that imposition of penalty amount again under Section 77 of the Act is not proper and justified. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Recovery of interest under Section 75 of the Finance Act
2. Imposition of penalty under Rule 7(C) of the Service Tax Rules, 1994

Analysis:
1. Recovery of Interest under Section 75 of the Finance Act:
The appellant argued that the irregularly availed cenvat credit, which was later reversed and not utilized for paying service tax, should be considered a mere book entry with no loss to the government. The appellant contended that interest is compensatory and should only be paid for delayed payment of the principal amount. The appellant cited judgments to support this argument. The Tribunal agreed with the appellant, stating that since there was no delay in paying service tax and the irregularly availed credit was not utilized, interest under Rule 14 of the Cenvat Credit Rules cannot be imposed. Therefore, the interest demand was set aside.

2. Imposition of Penalty under Rule 7(C) of the Service Tax Rules, 1994:
The appellant claimed that a return filed in June but accepted in September due to a computer issue should not attract the penalty under Rule 7(C). The respondent argued that the September filing should be considered a revised return, exposing the appellant to the penalty. The Tribunal agreed with the respondent, stating that the date of filing the return should determine the penalty. Thus, the penalty of Rs. 13,400 imposed under Rule 7(C) was upheld, while the additional penalty under Section 77 of the Act was deemed improper and set aside. The appeal was partly allowed, setting aside the interest demand and the additional penalty, but upholding the penalty imposed under Rule 7(C) of the Service Tax Rules, 1994.