2012 (9) TMI 166 - AT - Service Tax

Cenvat Credit - suo mout credit after reversal - held that - As such, the erroneous reversal made by the appellants, prompted by wrong audit objection and an inapplicable circular, has been rectified by the appellants by taking the suo motu credit of the reversed amount which is not the same as taking refund of excess duty amount paid. - the Larger Bench decision in the case of BDH Industries Ltd. (2008 (7) TMI 78 - CESTAT MUMBAI ) has no application to the present case. As regards the interest amount paid by the appellants Held that - The same amounts to excess payment except to the extent it relates to the period 1-9-2004 to 9-9-2004. The refund of the same is required to be considered in terms of Section 11B of the Central Excise Act, 1944 as made applicable to the service tax cases - appellants have filed a refund claim within the time-limit on 13-12-2006, the same requires to be considered by the original authority - appeal is allowed

Summary

Issues involved:
1. Reversal of service tax credit based on circular dated 20-6-2003.
2. Applicability of CENVAT credit rules and subsequent circulars.
3. Claim for interest refund and suo motu credit taken by appellants.
4. Contention regarding entitlement to suo motu credit.
5. Comparison with the Larger Bench decision in BDH Industries Ltd. case.
6. Eligibility of credit for the period before and after specific dates.
7. Consideration of refund claim and penalty imposition.

Issue 1: Reversal of service tax credit based on circular dated 20-6-2003:
The case involved the reversal of service tax credit due to an audit objection based on a circular dated 20-6-2003, which clarified that service tax credit is not eligible for mobile phones. However, the circular was not applicable from 10-9-2004 as per previous Tribunal decisions and subsequent circulars.

Issue 2: Applicability of CENVAT credit rules and subsequent circulars:
The Tribunal clarified that the CENVAT Credit Rules, 2004 did not restrict credit for mobile phones as the earlier Service Tax Credit Rules, 2002 did. The appellants reversed the credit erroneously due to wrong audit objections and circulars, which were later rectified by taking suo motu credit.

Issue 3: Claim for interest refund and suo motu credit taken by appellants:
The appellants claimed a refund of interest paid on service tax credit for mobile phones. They argued that the suo motu credit taken was an adjustment of wrongly reversed credit and not a refund. The Tribunal directed the original authority to consider the refund claim.

Issue 4: Contention regarding entitlement to suo motu credit:
The appellants contended that the Larger Bench decision in BDH Industries Ltd. case, which dealt with excess duty payment, did not apply to their case as they had not made any excess payment but had reversed credit based on incorrect audit objections.

Issue 5: Comparison with the Larger Bench decision in BDH Industries Ltd. case:
The Tribunal distinguished the present case from the BDH Industries Ltd. case, stating that the appellants had not made an excess payment but had reversed credit erroneously. Taking suo motu credit in this context was not equivalent to seeking a refund of excess duty.

Issue 6: Eligibility of credit for the period before and after specific dates:
The Tribunal noted that while credit for the period from 10-9-2004 was admissible, any credit related to the period before that date, specifically 1-9-2004 to 9-9-2004, needed to be reversed. The appellants agreed to reverse any such credit within a specified period.

Issue 7: Consideration of refund claim and penalty imposition:
The Tribunal set aside the demand for credit reversal from 10-9-2004 onwards, directed consideration of the interest refund claim, and waived the penalty imposed on the appellants. They were instructed to deposit any inadmissible credit amount within a specified timeframe.

In conclusion, the Tribunal allowed the appeal, considering the specific circumstances and legal provisions related to service tax credit on mobile phones, reversal of credit, interest refund, and applicability of CENVAT credit rules and circulars. The decision highlighted the importance of correct interpretation of circulars and rules in determining the eligibility of credit and refunds in indirect tax matters.