2015 (11) TMI 876 - AT - Service Tax

Levy of penalty - Tour Operator Services - utilization of the CENVAT Credit on the inputs services which were used for providing non-taxable output services. - when legal provisions are categorical and there is no doubt regarding interpretation of those provisions, whether lenient view could be taken for not imposing penalty - Held that - there is no doubt that once output services are provided free of service tax and separate records are maintained, it is imperative that no credit could be utilized for providing non-taxable services. It is also stipulated that if violation of legal provisions is manifested by not restricting the credit utilization to 20 per cent of the credit, then imposition of penalty is attracted. - Adjudicating Authority has rightly imposed the penalty of ₹ 100 per day till the payment of service tax under section 76 of the Finance Act restricting the total amount of penalty equivalent to the amount of service tax involved. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Applicability of Rule 6 of the CENVAT Credit Rules 2004 on availing CENVAT credit.
2. Utilization of CENVAT credit for non-taxable output services.
3. Imposition of penalty for violation of CENVAT credit rules.

Analysis:

Issue 1: Applicability of Rule 6 of the CENVAT Credit Rules 2004 on availing CENVAT credit:
The case involved a scenario where the appellant, a service provider registered with the Services Tax Department, availed CENVAT credit beyond the admissible limit of 20% under Rule 6 of the CENVAT Credit Rules 2004. The Commissioner (Appeal) found that the appellant utilized the CENVAT credit on inputs services used for providing non-taxable output services, which was in violation of the said rule. The appellant contended that they were under a bonafide belief regarding the utilization of credit, but it was established that they had indeed exceeded the permissible limit. The Adjudicating Authority rightly imposed a penalty for the violation, as per the provisions of the law.

Issue 2: Utilization of CENVAT credit for non-taxable output services:
The appellant, despite maintaining separate records, utilized CENVAT credit for services provided under both taxable and non-taxable categories. The contention was that since the appellant was providing output services free of service tax and maintaining separate records, no credit should have been utilized for non-taxable services. The violation of not restricting the credit utilization to 20% of the credit amount, as required by Rule 6 of the CENVAT Credit Rules 2004, led to the imposition of a penalty. The Adjudicating Authority found that the appellant had indeed violated the legal provisions and imposed a penalty equivalent to the amount of service tax involved.

Issue 3: Imposition of penalty for violation of CENVAT credit rules:
The key consideration was whether a lenient view could be taken regarding the imposition of a penalty when legal provisions were clear and there was no ambiguity in their interpretation. The judgment emphasized that strict adherence to the provisions was necessary, especially when output services were provided without service tax and separate records were maintained. The violation of Rule 6 of the CENVAT Credit Rules 2004 by not restricting credit utilization to 20% and using it for non-taxable services warranted the imposition of a penalty. The penalty imposed was deemed justified by the Adjudicating Authority, with a daily penalty amount until the payment of service tax, capped at the total amount of service tax involved.

In conclusion, the appeal was dismissed, affirming the imposition of the penalty for the violation of CENVAT credit rules. The judgment underscored the importance of strict compliance with legal provisions, especially in cases involving the utilization of credits for taxable and non-taxable services, as outlined in the CENVAT Credit Rules 2004.