2014 (6) TMI 628 - AT - Service Tax

Demand of service tax - Goods Transport Agency - availing cenvat credit while availing exemption under notification no.1/06-ST dated 1.3.2006 (S.No.6) - as soon as this irregularity was pointed out to them, they reversed the same along with interest. The point of dispute is that as to whether the subsequent reversal of the cenvat credit would amount to non availment of credit - Held that - for availment of 75% abatement in the notification no.1/06-ST which came into force w.e.f. 1.2.2006 the conditions of non-availment of cenvat credit in respect of input service has been added. - Apex Court has held that, when the benefit of an exemption is subject to the condition of non-availment of cenvat credit and initially, the assessee has taken the cenvat credit but subsequently, before the clearance of the exempted goods or after the clearance of the exemption goods the credit taken was reversed, it would amount to not taking the cenvat credit and the benefit of exempted notification cannot be denied - Following decision of Chandrapur Magnet Wires (P) Ltd. (1995 (12) TMI 72 - SUPREME COURT OF INDIA) and the judgement of the Hon ble Allahabad High Court is in the case of Hello Mineral Water Pvt. Ltd. (2004 (7) TMI 98 - HIGH COURT OF JUDICATURE AT ALLAHABAD) - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for exemption under Notification No. 1/06-ST.
2. Availment and subsequent reversal of Cenvat credit.
3. Imposition of penalty under Section 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Eligibility for exemption under Notification No. 1/06-ST:
The appellant, a Goods Transport Agency (GTA), was availing of an exemption under Notification No. 1/06-ST dated 1.3.2006, which provided for a 75% abatement on the gross amount charged, subject to the condition that no Cenvat credit of central excise duty on inputs or capital goods or service tax on input services was availed. During the period of dispute (1.4.2008 to 31.3.2009), the appellant availed of Cenvat credit amounting to Rs. 1,09,975/- on input services, which was disclosed in their ST-3 Returns. The assessing officer issued a show cause notice for denying the exemption and recovering the differential service tax amounting to Rs. 1,39,76,300/- along with interest and penalties. The Commissioner adjudicated the show cause notice, disallowed the exemption, and confirmed the service tax demand along with interest and penalties.

2. Availment and subsequent reversal of Cenvat credit:
The appellant argued that they were unaware of the additional condition of non-availment of Cenvat credit on input services imposed by Notification No. 1/06-ST. Upon realizing the mistake, they immediately reversed the credit of Rs. 1,09,975/- along with interest. The appellant relied on the Supreme Court's judgment in Chandrapur Magnet Wires (P) Ltd. Vs. CCE, Nagpur, which held that subsequent reversal of Cenvat credit would amount to non-availment of credit, thereby satisfying the condition of the exemption notification. The Tribunal and various High Courts, including the Allahabad High Court in Hello Minerals Water (P) Ltd. Vs. Union of India, have consistently held that subsequent reversal of Cenvat credit fulfills the condition of non-availment, making the exemption applicable.

3. Imposition of penalty under Section 78 of the Finance Act, 1994:
The appellant contended that the availment of Cenvat credit was a bona fide mistake and not a deliberate act of defiance or suppression of facts. They argued that no sensible assessee would forgo a duty exemption of over one crore rupees to avail of a Cenvat credit of Rs. 1,09,975/-. Therefore, the imposition of a penalty under Section 78 was unjustified. The Departmental Representative, however, argued that the appellant knowingly availed of the Cenvat credit in violation of the exemption conditions, justifying the penalty.

Conclusion:
The Tribunal concluded that the subsequent reversal of Cenvat credit along with interest amounted to non-availment of credit, thereby satisfying the condition of the exemption notification. The Tribunal relied on the Supreme Court's judgment in Chandrapur Magnet Wires (P) Ltd. and other similar judgments. The Tribunal found the Commissioner's order denying the exemption and confirming the duty demand incorrect. Consequently, the Tribunal set aside the impugned order and allowed the appeal, ruling that the exemption under Notification No. 1/06-ST was applicable, and the penalty under Section 78 was not justified.