2016 (4) TMI 983 - AT - Service Tax

Reversal of Cenvat credit, payment and interest therefore - Business Auxiliary Service - Section 65 (19) of the Finance Act, 1994 - Misuse of facility of Cenvat credit by taking credit on input/input service used and input services not utilized for providing output services - Held that - Ld. Commissioner has accepted the application dated 27.3.2009 submitted by the respondent under Section 73(3) of the Act, 1994 and dropped the proceedings of the show cause notice. In the result, the payment of Cenvat credit and interest stand confirmed and upheld, the only effect of dropping of the proceedings is no further penalty was imposed on the ground that under Section 73(3) no show cause notice could have been issued. On going through the nature of services and fact, it is found that Cenvat credit admissibility on the subject input services was contentious issue. The respondent could litigate the matter and they could have succeeded on merits. Moreover, it is beyond imagination that the entire Cenvat credit availed by them was liable to be disallowed. Taking into consideration of all these aspects, we are not interfering in the reversal of Cenvat credit, payment and interest thereof but respondent has clearly made out a fit case under Section 73(3) of Finance Act, 1994, according to which the department should not have issued show cause notice. Therefore, there could not be better case than the present case for allowing the application of the respondent filed under Section 73(3) of the Finance Act. - Decided against the revenue

Summary

Issues:
- Misuse of Cenvat credit by the respondent
- Dropping of proceedings by the Commissioner under Section 73(3) of the Finance Act
- Dispute over admissibility of Cenvat credit on input services
- Imposition of penalty

Analysis:
1. The appeal was filed against the Order-in-Original passed by the Commissioner, where it was observed that the respondent misused the facility of Cenvat credit by taking credit on inputs used by them and other companies, and on input services not utilized for providing output services. The respondent reversed the entire credit availed along with interest after an audit. The Commissioner accepted the respondent's application under Section 73(3) and dropped the proceedings, which led to the appeal by the Revenue.

2. The Revenue argued that since the respondent had paid the amount along with interest and did not dispute the wrong availment of credit, the Commissioner erred in dropping the proceedings. The Revenue contended that the proviso to Section 73(1) should have been invoked due to the extended period of credit reversal, and penalty should have been imposed.

3. On the other hand, the respondent's counsel argued that the nature of input services had been recognized in previous judgments, and the respondent voluntarily reversed the credit, paid interest, and filed an application under Section 73(3). The counsel emphasized that the issue was not the payment but the imposition of a penalty, and cited relevant case law to support their position.

4. The Tribunal considered both arguments and noted that the Commissioner correctly accepted the respondent's application under Section 73(3), leading to the dropping of proceedings. While not interfering with the reversal of credit and payment of interest, the Tribunal found that the respondent had a valid case under Section 73(3) as the issue of Cenvat credit admissibility on input services was contentious. The Tribunal upheld the Commissioner's decision based on detailed findings provided by the Commissioner.

5. The Commissioner's findings highlighted that the respondent had reversed the impugned service tax credit, paid the amount and interest, and the issue mainly revolved around the penalty. The Commissioner deemed it a fit case for accepting the application under Section 73(3) based on the circumstances and contents of the show cause notice. The Tribunal upheld the Commissioner's decision, dismissing the Revenue's appeal.

In conclusion, the Tribunal upheld the Commissioner's decision to drop the proceedings under Section 73(3) of the Finance Act, emphasizing the contentious nature of the issue and the respondent's compliance with the reversal of credit and payment of interest.