2012 (10) TMI 406 - AT - Service Tax

Levy of Interest and Penalty on Service Tax paid on GTA Services - Held that - Interest and penalty cannot be imposed as there is no failure to pay the duty at the time Liability to pay arises.As decided in case of CCE v. Nahar Industrial Enterprises Ltd.2010 (5) TMI 608 - PUNJAB AND HARYANA HIGH COURT , Payment made initially through Cenvat credit was a good discharge of the tax liability and hence there cannot be a demand for interest. Tax paid again in cash only to avoid unnecessary litigation cannot be a reason to demand interest and as there was no delay in payment of Tax Liability Penalty cannot be imposed.

Summary

Issues:
1. Applicability of Cenvat Credit scheme to services received from Goods Transport Agencies.
2. Payment of service tax through Cenvat credit vs. cash.
3. Demand for interest on tax initially paid through credit and later in cash.
4. Penalty imposition under section 76 of the Finance Act, 1994.

Analysis:

Issue 1: Applicability of Cenvat Credit scheme to services received from Goods Transport Agencies
The Appellants, manufacturers of excisable goods, availed the benefit of the Cenvat Credit scheme for services received from Goods Transport Agencies. The dispute arose regarding the payment of service tax on these services as per the provisions of Rule (2)(v) of the Service Tax Rules, 1994, for the period April 2005 to September 2005.

Issue 2: Payment of service tax through Cenvat credit vs. cash
Initially, the Appellants paid tax on the services received using Cenvat credit available in their account. However, during a Revenue audit, it was objected that the service tax should have been paid in cash rather than through Cenvat credit. The Appellants then paid the tax amount in cash but did not pay interest on the tax initially paid through credit and later in cash.

Issue 3: Demand for interest on tax initially paid through credit and later in cash
The Revenue issued a Show Cause notice demanding the tax amount along with interest and penalty. The Commissioner (Appeal) confirmed the demand for interest but waived the penalty. The Appellants contended that the initial payment through Cenvat credit was a valid discharge of tax liability, citing a relevant court decision. The Tribunal found merit in this argument, stating that interest is payable only when tax is not paid on time, and since the tax was paid properly during the relevant period, there was no liability for interest.

Issue 4: Penalty imposition under section 76 of the Finance Act, 1994
Although the penalty was waived by the Commissioner (Appeal), it was an issue raised in the case. The Tribunal did not delve into this aspect as the focus was primarily on the demand for interest and the validity of the tax payment made through Cenvat credit.

In conclusion, the Tribunal set aside the orders of the lower authorities, allowing the appeal based on the argument that the tax was paid properly during the relevant time, and hence, there was no liability for interest.