2014 (2) TMI 753 - AT - Service Tax

CENVAT credit - Receipt of royalty - extended period of limitation - Appellant had availed the credit of service tax paid by M/s. Ghari Industries on the franchisee services provided by them. The said payment was made during the period when the application for amalgamation of the two units was pending before the Allahabad High Court. - Held that - Admittedly, during that period, the service receiver was entitled to the credit of service tax paid by M/s. Ghari Detergent (P) Ltd. The subsequent orders of the Hon ble Allahabad High Court allowing the amalgamation of the two units from the date of the application will not affect the appellant s entitlement to the credit inasmuch as the service tax stands paid by M/s. Ghari Detergent (P) Ltd. during the same period. If the Revenue s contention is accepted, then there was no requirement for payment of service tax by M/s. Ghari Industries. Revenue is silent about the service tax paid by M/s. Ghari Industries - Demand is barred by limitation. The petition for amalgamation was pending before the Hon ble High Court and as such, it cannot be said that there was any suppression or mis-statement on the part of the appellant to irregularly avail the credit with any malafide intention. As such, we are of the view that the demand raised by invoking the longer limitation period of doubt is not prima facie justified - Decided in favour of assessee.

Summary

Issues:
1. Denial of cenvat credit of service tax paid by M/s. Ghari Industries Pvt. Ltd. on royalty received by the appellant.
2. Imposition of penalty under various Sections of the Finance Act, 1994.
3. Barred by limitation - suppression or mis-statement regarding availing credit.

Issue 1: Denial of Cenvat Credit:
The Commissioner confirmed a demand by denying the benefit of cenvat credit of service tax paid by M/s. Ghari Industries Pvt. Ltd. on royalty received from the appellant. The appellant allowed M/s. Rohit Surfactants Pvt. Ltd. to use their brand name and paid service tax on the franchisee services during the relevant period. The Hon'ble High Court allowed the amalgamation of M/s. Ghari Industries Pvt. Ltd. and M/s. Rohit Surfactants Pvt. Ltd. from a certain date. The Revenue contended that post-amalgamation, the service tax on royalty paid by M/s. Ghari Industries would not be available as credit. However, the Tribunal found that the appellant had availed the credit of service tax paid by M/s. Ghari Industries during the period when the amalgamation application was pending. The Tribunal held that the subsequent amalgamation order would not affect the appellant's entitlement to the credit as the service tax was paid during the same period, making the exercise revenue neutral.

Issue 2: Imposition of Penalty:
In addition to the denial of cenvat credit, the Commissioner imposed a penalty under various Sections of the Finance Act, 1994. However, the Tribunal noted that the demand was barred by limitation. The Tribunal observed that during the pendency of the amalgamation petition before the High Court, there was no suppression or mis-statement by the appellant to irregularly avail the credit with any malafide intention. Consequently, the Tribunal found that the demand raised by invoking a longer limitation period was not prima facie justified. As a result, the Tribunal dispensed with the condition of pre-deposit of service tax, interest, and penalty, staying the recovery during the appeal's pendency.

Issue 3: Barred by Limitation - Suppression or Mis-statement:
Regarding the issue of being barred by limitation due to suppression or mis-statement, the Tribunal found that the petition for amalgamation was pending before the High Court during the relevant period. Therefore, there was no evidence of any suppression or mis-statement by the appellant to irregularly avail the credit with any malafide intention. Consequently, the Tribunal concluded that the demand raised by invoking the longer limitation period was not justified. As a result, the Tribunal dispensed with the pre-deposit condition and stayed the recovery of service tax, interest, and penalty during the appeal's pendency.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT New Delhi highlights the key issues of denial of cenvat credit, imposition of penalty, and the limitation aspect, providing a comprehensive understanding of the legal reasoning and decision-making process involved in the case.