2022 (8) TMI 1395 - HC - Service Tax

Wrongful utilisation of CENVAT Credit - availing credit on Service Tax paid on input service and claiming credit while the payment of Service Tax on output service provided is made - whether the order of Commissioner dropping further action pursuant to notice dated 18-10-2012, basing on the report of Range Officer is legal and tenable? HELD THAT - It is not pointed out in either of the forums that the report of range officer is erroneous on any ground or circumstance. The consequence of accepting the report of Range Officer must result in the very finding recorded by the Tribunal and the Commissioner. For the assessment year 1-4-2011 to 31-3-2012, the Commissioner while seized of the matter sought a clarification from the jurisdictional Range Officer regarding the practice followed by the assessee availing Cenvat credit and it is on the basis of the said report as well as the certificate issued by the chartered accountant, that separate accounts are being maintained the Tribunal dismissed the appeal filed by the Department and the assessee s case was accepted. When the departmental officer himself admits that there is no violation of any of the Rules and the assessee has followed Rule 6(2) of the Cenvat Credit Rules the Tribunal is justified in dismissing the appeal. There are no ground to interfere with the order of the Tribunal - appeal dismissed.

Summary

Issues:
Challenge to final order dated 14-9-2018 in S.T. No. 21676 of 2014 on the file of the CESTAT, Bangalore regarding Cenvat credit availed by a shipping service company.

Analysis:
The appeal was filed by the Commissioner of Central Excise, Customs, and Service Tax challenging the final order dated 14-9-2018 in S.T. No. 21676 of 2014 on the file of the CESTAT, Bangalore. The respondent, a shipping service company, availed credit under the Cenvat Credit Rules, 2004 on Service Tax paid on input service. The show cause notice issued by the appellant raised concerns about the wrongful utilization of Cenvat credit for payment of Service Tax, Education Cess, and Secondary & Higher Education Cess for the period 1-4-2011 to 31-3-2012. The notice demanded recovery of the credit, interest, and penalties. In response, the respondent denied the allegations, explaining the classification of inputs into direct and indirect expenses and the reversal of credit on indirect expenses during the disputed period.

The assessee maintained separate private accounts for CENVAT credit, and the Range Officer confirmed that no credit was availed on input services exclusively meant for exempted services. The private accounts showed the full credit availed, with deductions for indirect expenses common to taxable and exempted services. The net credit amount was reflected in the ST3 Returns. The Range Officer's report highlighted specific details of the credit availed and utilized by the assessee for both taxable and exempted services. A certificate from a chartered accountant confirmed the maintenance of separate books of account in the computerized system for different divisions.

Based on the clarification from the Range Officer and the certificate from the chartered accountant, the Commissioner found the assessee compliant with the Cenvat Credit Rules, 2004. Consequently, the demand raised in the show cause notice was deemed unsustainable, and proceedings were dropped. The Department appealed to the CESTAT, Bangalore, challenging the Commissioner's order. The Tribunal, considering the certificate and the Range Officer's report, concluded that the assessee had maintained separate records as required by the Cenvat Credit Rules, leading to the dismissal of the Department's appeal.

The core issue for consideration was whether the Commissioner's decision to drop further action based on the Range Officer's report was legal. Both the Tribunal and the High Court found that the report was accurate, and the assessee had followed the rules diligently. The Tribunal's decision to dismiss the appeal was upheld by the High Court, as there was no evidence of rule violations by the assessee. The appeal by the Commissioner failed, and the High Court dismissed the same, affirming the Tribunal's decision.