2014 (8) TMI 98 - AT - Service Tax

Cenvat Credit - Extended period of limitation - provided taxable and non-taxable services both - reversal of credit under Rule 6 of CCR, 2004 - appellant has used the entire Cenvat Credit for discharge of the service tax liability on the output services during the period October 2004 to September 2007; wherein during the period they were supposed to use only 20% of the amount of the Cenvat Credit. - Held that - appellant has contravened the provisions of the Cenvat Credit Rules, 2004 - the amount of ₹ 51,85,498/- paid by the appellant through PLA / cash is over and above the same amount which has been debited by them during the period October 2004 to September 2007 in their Cenvat Credit account. - lower authorities directed to allow the appellant to avail Cenvat Credit of an amount of ₹ 51,85,498/- as appellant has made good the said amount by paying it in cash. Levy of penalty - waiver of penalty u/s 80 - Held that - appellant could not be charged with intentional evasion of service tax liability by utilizing excess amount of the Cenvat Credit for discharging service tax liability, in as much that there is no dispute that appellant had sufficient balance in the Cenvat Credit account. - the penalties imposed by the adjudicating authority under Section 76 and 78 of the Finance Act, 1994, are very harsh and unwarranted - the appellant is subsidiary of a Government of Gujarat undertaking and also noting that appellant could have had a bonafide belief that the digital signature certification services would not fall under the category of exempted services, by invoking provisions of Section 80 of the Finance Act, 1994, we hold that appellant has made out a reasonable and justifiable cause for setting aside the penalties. - penalty waived - Decided partly in favor of assessee.

Summary

Issues:
Improper utilization of Cenvat Credit, Tax liability on digital signature certification services, Time limitation for demand, Penalties imposed under Sections 76 and 78 of the Finance Act, 1994.

Improper Utilization of Cenvat Credit:
The appellant, a service provider, utilized Cenvat Credit for paying service tax on output services beyond the permissible limit of 20% as per Rule 6(3)(c) of the Cenvat Credit Rules, 2004, for the period of October 2005 to September 2007. The lower authorities issued a show cause notice demanding Rs. 51,85,498 for improper utilization. The appellant contended that digital signature certification services were not taxable, relying on CBEC circular no.137/76/2008-CX(4), and argued that the demand was time-barred as they regularly filed returns and paid taxes through Cenvat Credit. However, the Tribunal found the appellant in contravention of the rules and upheld the demand, directing them to pay the amount through PLA.

Tax Liability on Digital Signature Certification Services:
The appellant argued that digital signature certification services were not taxable and hence not exempted services, citing the definition of taxable services under Section 65(105). They relied on various case laws to support their contention. The Departmental Representative referred to a similar case to justify penalizing the appellant. The Tribunal noted that the appellant had a bonafide belief that these services were non-taxable, and hence, penalties under Sections 76 and 78 of the Finance Act, 1994, were set aside invoking Section 80 of the Act.

Time Limitation for Demand:
The appellant claimed that the demand was time-barred as they had regularly filed returns and there was no evasion of tax. However, the Tribunal found that the appellant failed to clearly communicate the provision of digital signature certification services to the revenue, and thus, the defense of limitation did not hold.

Penalties Imposed under Sections 76 and 78 of the Finance Act, 1994:
The Tribunal considered the penalties imposed by the adjudicating authority as harsh and unwarranted, given the appellant's bonafide belief regarding the taxability of the services. Considering the appellant's subsidiary status of a Government of Gujarat undertaking and the circumstances of the case, penalties under Sections 76 and 78 were set aside invoking Section 80 of the Finance Act, 1994.

In conclusion, the Tribunal allowed the appeal, directing the appellant to pay the demanded amount through PLA but also allowing them to avail Cenvat Credit for the same amount paid in cash. Penalties under Sections 76 and 78 of the Finance Act, 1994, were set aside, providing relief to the appellant.