2014 (5) TMI 876 - AT - Service Tax

Eligibility of the CENVAT credit of service tax paid - Interest - Penalty - Held that - appellant is liable to pay interest even if the credit is not utilized. That being the position, the demand for interest made by the appellant has to be upheld - Interest upheld - Penalty waived - Decided partly in favour of assessee.

Summary

Issues Involved:
Eligibility of CENVAT credit on service tax paid on software exported by the appellant, reversal of credit attributable to trading activity, liability for interest on unutilized credit, waiver of penalty under Section 80 of Finance Act 1994.

Analysis:

1. Eligibility of CENVAT Credit:
The issue at hand pertains to the eligibility of the CENVAT credit of service tax paid on software exported by the appellant. It was noted that the appellant, involved in both exporting software and trading activities, had availed credit on various services. However, there was an omission in reversing the credit attributable to the trading activity. Upon realization of the error, the appellant promptly calculated and reversed the CENVAT credit related to the trading activity. The Tribunal acknowledged the appellant's compliance in rectifying the oversight.

2. Liability for Interest on Unutilized Credit:
The appellant's representative argued that as an exporter of services, the appellant consistently had a surplus in the CENVAT credit account and regularly claimed refunds for service tax paid on input services. It was contended that since the excess credit was always available and not utilized, there should be no liability for interest. However, the Tribunal, citing a Supreme Court decision, held that the appellant is liable to pay interest even if the credit remains unutilized. Consequently, the demand for interest was upheld.

3. Waiver of Penalty under Section 80 of Finance Act 1994:
Considering the appellant's size, the minor nature of the trading activity, and the voluntary reversal of credit upon detection of the error, the Tribunal deemed it a fit case for invoking the provisions of Section 80 of the Finance Act 1994 to waive the penalty. The Tribunal found that the circumstances warranted leniency in imposing penalties, and thus, the penalty imposed on the appellant was set aside.

In conclusion, the appeal was decided by confirming the demand for wrongly availed CENVAT credit and the interest thereon, while setting aside the penalty imposed on the appellant under the provisions of Section 80 of the Finance Act 1994.