2021 (12) TMI 1426 - AT - Service Tax

Availment of CENVAT credit without payment of service tax under reverse charge mechanism - Credit availed not utilised - interest also paid for availment of such irregular credit - penalty u/s 77 and 78 of FA - HELD THAT - In some months though the appellant had availed Cenvat credit without payment of service tax under reverse charge mechanism but such irregularly availed credit was not utilized for payment of service tax and also the appellant had discharged the interest liability for availment of such irregular credit. Since the appellant had compensated the government exchequer by way of payment of interest on the irregularly availed Cenvat credit for the disputed period it cannot be said that they are liable for reversal of the entire Cenvat credit. Since the credit availed by the department had not been utilized for payment of service tax on the output service and the appellant had paid the interest amount to compensate the Government Revenue for taking of earlier Cenvat credit the proceedings initiated for denial of the Cenvat benefit and the recovery of the same should not stand for judicial scrutiny. Levy of penalty under Section 78 - HELD THAT - The ingredients mentioned in the statute namely fraud collusion willful misstatement etc. are absent in the present case. Taking on irregular cenvat credit payment of interest thereon and available cenvat credit in the books of accounts were within the knowledge of the department. Hence invocation of Section 78 will not hold good for imposition of penalty on the appellant. Penalty imposed under Section 77 ibid - HELD THAT - The penalty imposed under Section 77 ibid is justified in the circumstances of the present case. Further the learned Advocate appearing for the appellant also fairly concedes that the case of the appellant is exposed to the penal consequences provided under Section 77 ibid. The impugned order to the extent it upheld the recovery of Cenvat demand along with interest and imposition of penalty under Section 78 ibid is set aside and appeal to such extent is allowed in favour of the appellant.

Issues:
1. Service tax liability under Reverse Charge Mechanism
2. Availment of Cenvat credit without payment of service tax
3. Imposition of penalties under Section 77 and 78 of the Finance Act, 1994

Issue 1: Service tax liability under Reverse Charge Mechanism

The appellant, engaged in providing taxable services, faced show-cause proceedings due to discrepancies in payment of service tax under the Reverse Charge Mechanism. The original authority confirmed a service tax demand of Rs. 40,15,914/- along with interest and penalties under Sections 77 and 78 of the Finance Act, 1994. The Commissioner (Appeals) upheld the demands, leading to the appellant's appeal before the Tribunal.

Issue 2: Availment of Cenvat credit without payment of service tax

The Tribunal noted that the appellant had availed Cenvat credit without paying service tax under the Reverse Charge Mechanism in some months. However, the irregularly availed credit was not utilized for service tax payment, and the appellant had paid interest to compensate the government for this irregular credit. As the credit was not used for tax payment and interest was paid to the government, the Tribunal deemed the appellant not liable for reversal of the entire Cenvat credit.

Issue 3: Imposition of penalties under Section 77 and 78

Regarding penalties, the Tribunal found that the elements of fraud, collusion, or willful misstatement were absent in the case. The department was aware of the irregular Cenvat credit, interest payment, and available credit in the books. Thus, the Tribunal concluded that penalty under Section 78 was not justified. However, the penalty under Section 77 was deemed justified, and the appellant's advocate acknowledged the penal consequences under this section.

In conclusion, the Tribunal set aside the recovery of Cenvat demand, interest, and penalty under Section 78, allowing the appeal in favor of the appellant partially. The penalty under Section 77 was upheld. The decision was made after considering the facts and legal provisions, ensuring a fair and just outcome in the case.

← Previous Next →