2017 (2) TMI 539 - AT - Service Tax

Interest - penalty - reversal of irregularly availed credit - whether the appellant is liable to pay the interest and penalty for the irregularly availed credit, which was reversed prior to utilisation according to the appellant? Held that - having sufficient balance in the CENVAT account in any of the category namely input, capital goods or input services would suffice for the purpose of considering whether the appellant had reversed the credit before utilisation - the levy of interest and penalty is unwarranted - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability to pay interest and penalty for irregularly availed credit reversed prior to utilization.

Analysis:
1. The appellant, engaged in providing taxable services, availed CENVAT Credit on input services in 2011-12 but later reversed the credit before a show cause notice was issued. The authorities demanded interest and penalty on the reversed credit, which the appellant contested, arguing that they had sufficient balance in the input service credit account at the time of reversal. The Commissioner (Appeals) upheld the demand, leading the appellant to appeal to the Tribunal.

2. The appellant's representative argued that since the credit was reversed before utilization, the imposition of interest and penalty was unjustified. The authorities contended that the appellant lacked sufficient credit balance in the input service category when the credit was reversed, justifying the interest and penalty. The Tribunal examined the closing balance of the credit account and relevant legal precedents to determine the liability.

3. The Tribunal observed that the appellant did not maintain a separate balance for input services under the CENVAT Credit Rules, which allow a common credit pool for inputs, input services, and capital goods. Relying on precedents like Bill Forge Pvt Ltd., the Tribunal emphasized that having sufficient balance in any category's credit account is crucial. It cited various judgments supporting the use of a common credit pool without the need for segregation for different purposes.

4. Referring to decisions like Jyothi Structures Ltd., the Tribunal reiterated that no provision mandates the segregation of input services for payment of excisable goods or service tax. Following these principles, the Tribunal concluded that the appellant's reversal of credit before utilization did not warrant interest and penalty. It set aside the impugned order, allowing the appeal with consequential reliefs.

5. The Tribunal's analysis highlighted the importance of maintaining a sufficient overall credit balance rather than specific balances for different categories. By emphasizing the common credit pool concept and legal precedents supporting it, the Tribunal clarified the appellant's position regarding the reversed credit. The judgment serves as a significant interpretation of the CENVAT Credit Rules and their application in cases of reversed credits.