2016 (11) TMI 630 - AT - Central Excise

Wrong availment of cenvat credit - charges paid to a person situated abroad for the services rendered on installation of office machinery to foreign clients - reverse charge mechanism - Held that - the appellant is not eligible to avail cenvat credit of the amount paid as service tax under reverse charge mechanism as these services are outsourced by the appellant to a person situated abroad. These services cannot be, by any stretch of imagination, considered as services which are used for the manufacturing of the final product. In my view, the cenvat credit availed by the appellant of the amount of ₹ 2,72,794/- is erroneous and has been correctly confirmed by the lower authorities. I uphold the impugned order of the confirmation of the demand along with interest. Imposition of penalty u/r 15(4) of the Cenvat Credit Rules, 2004 - Held that - the appellant could have been under bona fide belief that they can avail the cenvat credit. Since the appellant has already discharged the demand of duty along with interest, I hold that the penalty imposed on the appellant is unwarranted. Accordingly, I set aside the penalty imposed on the appellant. The impugned order is modified to this extent. Appeal disposed off - decided partly in favor of appellant.

Issues involved:
1. Wrong availment of cenvat credit during a specific period.
2. Eligibility of cenvat credit related to service tax paid under reverse charge mechanism.
3. Penalty imposed under Rule 15(4) of the Cenvat Credit Rules, 2004.

Analysis:

Issue 1: Wrong availment of cenvat credit during a specific period
The appellant availed cenvat credit of service tax paid under reverse charge mechanism for services rendered on the installation of office machinery to foreign clients. The appellant believed they were eligible for the credit due to the contractual obligation of installing machinery abroad. However, lower authorities held that such credit was not related to the manufacturing activity of the appellant. The Tribunal concurred with the lower authorities, stating that the services outsourced abroad were not directly related to manufacturing the final product. Consequently, the cenvat credit availed by the appellant was deemed erroneous, and the demand was confirmed along with interest.

Issue 2: Eligibility of cenvat credit related to service tax paid under reverse charge mechanism
The Tribunal affirmed that the appellant was not entitled to avail cenvat credit for the service tax paid under reverse charge mechanism for services outsourced abroad. Despite the appellant's belief in the eligibility of the credit, the Tribunal emphasized that such services were not utilized in the manufacturing process. Therefore, the confirmation of the demand for the erroneous credit was upheld.

Issue 3: Penalty imposed under Rule 15(4) of the Cenvat Credit Rules, 2004
Regarding the penalty imposed on the appellant under Rule 15(4) of the Cenvat Credit Rules, 2004, the Tribunal noted that the appellant had a bona fide belief in availing the cenvat credit. Since the appellant had already paid the demand along with interest, the Tribunal deemed the penalty unwarranted and set it aside. Consequently, the impugned order was modified to exclude the penalty, and the appeal was partially allowed based on this decision.

In conclusion, the Tribunal upheld the denial of cenvat credit related to services outsourced abroad, confirmed the demand for the erroneous credit along with interest, and set aside the penalty imposed on the appellant due to their genuine belief in the credit's eligibility.

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