2016 (5) TMI 900 - AT - Service Tax

Waiver of penalty imposed under Section 78 of the Finance Act, 1994 and late fee - Section 80 ibid - Trading of goods i.e. sale of empty cartons - Availed Cenvat credit on input services used in or in relation to provision of said services as well as in trading of goods - No separate accounts for receipt, consumption and inventory of input and input services used for providing taxable and non-taxable services as envisaged in Rule 6(2) of the CCR, 2004 were made. Held that - the reversal of credit was sought by the Revenue on the ground that the appellant is engaged in providing taxable service as well as non taxable activity i.e. Trading Activity. It is found that prior to 31/3/2011 there was no clarity whether the Cenvat credit in respect of services used for trading activity is required to be reversed or otherwise. Trading activity is included in the exempted services w.e.f. 1/4/2011 since then appellant was reversing the credit attributed to the Trading Activity. However for the period before 31/3/2011 appellant paid entire amount alongwith interest. In view of lack of clarity on the inclusion of Trading Activity under exempted service w.e.f. 1/4/2011, the appellant has shown a reasonable cause for non reversal of the Cenvat credit attributed to the trading activity. Therefore the penalty imposed under Section 78 by invoking Section 80 of the Finance Act, 1994 is waived of. - Decided in favour of appellant

Summary

Issues:
1. Confirmation of demand of service tax and interest
2. Imposition of penalty under Section 78 of Finance Act, 1994

Analysis:
1. Confirmation of Demand and Interest:
The appeal was directed against an Order-in-Original confirming a demand of Rs. 11,66,645 for the period April 2008 to March 2012. The appellant was engaged in providing various services and trading of goods. It was observed during an audit that the appellant had availed Cenvat credit on input services without maintaining separate accounts for taxable and non-taxable services as required by Rule 6(2) of the CCR, 2004. The appellant failed to comply with the provisions of Rule 6, leading to the issuance of a show cause notice and subsequent confirmation of demand by the Commissioner. The appellant contested the demand but had paid the entire amount along with interest.

2. Imposition of Penalty under Section 78:
The appellant, through their representative, sought a waiver of the penalty imposed under Section 78. The contention was that prior to April 1, 2011, there was confusion regarding the requirement to reverse Cenvat credit attributed to trading activities. The trading activity was considered an exempted service only from April 1, 2011. The appellant had voluntarily reversed the credit attributed to trading activities between April 2011 and March 2012 and paid the entire amount of Cenvat credit along with interest. It was argued that there was no malafide intention on the part of the appellant, and a reasonable cause was shown for the non-reversal of the credit.

3. Judgment and Decision:
After considering the submissions from both sides and examining the record, the Member (Judicial) found that there was a lack of clarity regarding the treatment of Cenvat credit for trading activities before March 31, 2011. The appellant had paid the entire amount along with interest for the period before March 2011. Given the reasonable cause shown by the appellant for not reversing the credit attributed to trading activities, the Member (Judicial) invoked Section 80 of the Finance Act, 1994, and waived the penalty imposed under Section 78. The appeal was allowed in favor of the appellant.

This detailed analysis of the judgment highlights the issues of confirmation of demand, interest, and imposition of penalty under Section 78, along with the arguments presented by both parties and the ultimate decision reached by the Appellate Tribunal CESTAT Mumbai.