2014 (8) TMI 226 - AT - Service Tax

Disallowance of CENVAT Credit - erection, installation and commissioning service - Interest u/s 11AB - Applicable section whether Section 11AB or Section 75 - Held that - the appellant, having been registered with the Department as a provider of erection, installation and commissioning service , could not have assumed for a moment that the said service was an input service. The plea of bona fide belief is, therefore, not sustainable. Though, in their periodical returns, the amounts of Cenvat credits taken on input services were mentioned, none of such services was specified. The fact that Cenvat credit was taken on erection, installation and commissioning service was not disclosed to the Department. Section 11AB of the Central Excise Act was correctly invoked in this case wherein Cenvat credit was wrongly availed of and utilized for payment of duty of excise on final product thereby creating a situation of short-payment of duty of excise on final product. It was the short-paid duty which was paid by the assessee before show-cause notice but without interest. This interest has been paid by the assessee after the impugned order was passed and the same is interest on duty of excise, which cannot be demanded under section 75 of the Finance Act, 1994. The correct provision of law governing this interest is section 11AB of the Central Excise Act - Decided against assessee.

Summary

Issues:
- Disallowance of Cenvat credit on "erection, installation and commissioning service"
- Appropriation of amount already paid towards the demand
- Demand of interest under section 11AB of the Central Excise Act
- Imposition of penalty under rule 15 of the Cenvat Credit Rules, 2004

Analysis:

The appeal before the Appellate Tribunal CESTAT Bangalore involved a dispute regarding the disallowance of Cenvat credit amounting to Rs. 2,15,526 on "erection, installation and commissioning service" for the period from December 2005 to March 2006. The original authority had disallowed the credit, raised a demand for interest under section 11AB of the Central Excise Act, and imposed a penalty under rule 15 of the Cenvat Credit Rules, 2004. The appellant, despite notice, did not appear before the tribunal, and the case was heard in their absence.

The appellant, engaged in manufacturing conveyors, utilized Cenvat credit for duty payment during the disputed period. The Department detected irregularities in the utilization of Cenvat credit on the "erection, installation and commissioning service" provided by the appellant. A show-cause notice was issued invoking the extended period of limitation due to alleged suppression of facts. The appellant had paid an amount equal to the disputed credit before the notice, seeking its appropriation towards the demand. The notice also proposed interest under section 11AB and a penalty under rule 15 of the Cenvat Credit Rules, which the appellant contested.

The appellant challenged the demand for interest under section 11AB and the penalty imposition under rule 15/section 11AC. They argued that no interest could be demanded under section 11AB and that the penalty was unjustified as the duty was paid before the show-cause notice. The appellant claimed they had no mala fide intention and promptly rectified the mistake. The Department contended that the appellant, registered as a service provider, should have known the service was not an input service. They argued that the extended limitation period was valid due to suppression of material facts.

The tribunal upheld the Department's arguments, dismissing the appeal. The tribunal agreed with the Department that the invocation of the extended limitation period was valid. They also held that interest under section 11AB was correctly demanded as the appellant had wrongly utilized Cenvat credit, leading to short-payment of duty. The tribunal found merit in the Department's submissions and upheld the decision of the original authority.

In conclusion, the tribunal affirmed the decision of the original authority, dismissing the appeal against the demand of interest and penalty under the Cenvat Credit Rules, 2004.