2017 (3) TMI 311 - AT - Service Tax

CENVAT credit - book adjustments - On such book adjustments the appellant has taken credit and the demand of interest is made on the pretext that there is delay in paying service tax and that appellant has taken credit of the service tax even before the payment of the said amount to the Associated Enterprises - Held that - When the service tax has been paid by the Associated Enterprises within time the demand of interest cannot sustain, in terms of provisions laid in Section 67(4)(c) - appeal allowed - decided in favor of appellant.

Summary

Issues: CENVAT credit eligibility for storage and warehousing services, delay in payment of service tax to Associated Enterprises, validity of book adjustments for credit, demand of interest and penalty.

Analysis:

1. CENVAT Credit Eligibility: The appellants were engaged in storage and warehousing services and availed the services of Associated Enterprises for which they took CENVAT credit. The original authority initially alleged wrongful CENVAT credit of ?72,12,604 for the period 2008-2011. However, after due process, the original authority dropped the demand, stating that the appellants were eligible to take credit based on book adjustments made for payments to Associated Enterprises and other service providers.

2. Delay in Payment of Service Tax: The original authority observed a delay in payment of service tax to the Government on behalf of Associated Enterprises, leading to a demand for interest of ?5,28,510. Additionally, a penalty of equal amount was imposed. The appellant contested this, arguing that the Associated Enterprises paid the service tax promptly without waiting for payment from the appellant, and that the book adjustments were valid under Section 67(4)(c) of the Finance Act, 1994.

3. Validity of Book Adjustments: The appellant's counsel highlighted that the Associated Enterprises paid the service tax promptly, following a procedure where they paid the tax in the succeeding month without waiting for the appellant's payment. The counsel referenced Section 67(4)(c) and a Board Circular to support the validity of book adjustments for credit. The appellant maintained that there was no delay in paying service tax to the Government.

4. Demand of Interest and Penalty: The department argued that there was indeed a delay in the appellant's payment of service tax to the Associated Enterprises, justifying the interest demand. The Appellate Tribunal, after considering the submissions, found that the appellant had appropriately taken credit through book adjustments for services provided by Associated Enterprises. The Tribunal noted that the service tax was paid on time by the Associated Enterprises, and thus, the demand for interest was unfounded. Consequently, the Tribunal set aside the demand of ?5,28,510 and the penalty imposed, while upholding the interest already paid for the delay in payment to other service providers.

In conclusion, the Appellate Tribunal allowed the appeal, providing consequential reliefs, and disposed of the stay application accordingly. The judgment clarified the validity of book adjustments for credit, emphasizing that when service tax is paid promptly by Associated Enterprises, there is no basis for demanding interest from the appellant.