2017 (7) TMI 351 - AT - Service Tax

Liability of interest u/s 75 of FA - appellant had taken input service credit even before payments were made, in contravention of Rule 4 (7) of CCR, 2004 - Held that - although appellant had represented that they have utilized the credit only after making payment to the input service provider, however they had not submitted necessary evidence thereof to the adjudicating authority - decision in the case of CCE Madurai Vs Strategic Engineering (P) Ltd. 2014 (11) TMI 89 - MADRAS HIGH COURT squarely covers the issue, where it was held that mere taking of cenvat credit wrongly would not compel the assesee to pay interest as well as penalty. The matter requires to be remanded to the adjudicating authority for de novo consideration keeping in mind the ratio of Strategic Engineering case as also to give another opportunity to the appellant to produce bill wise details to establish that the credits availed by them have been utilized only after payments were effected to the concerned service provider - appeal allowed by way of remand.

Summary

Issues:
Allegation of taking input service credit before payments were made, contravening Rule 4 (7) of Cenvat Credit Rules, 2004, leading to interest liability under Section 75 of the Finance Act, 1994.

Analysis:
The dispute in this case revolves around the department's claim that the appellant had availed input service credit prior to making payments, violating Rule 4 (7) of the Cenvat Credit Rules, 2004, which would attract interest under Section 75 of the Finance Act, 1994. The proceedings were initiated based on this allegation, proposing an interest liability of ?7,44,584/- for irregularly taken credits during the period from 01.04.2005 to 31.03.2008. The adjudicating authority confirmed this interest liability, leading to the current appeal.

During the hearing, the appellant's advocate argued that although the credit was taken concerning payments to the service provider, it was utilized only after the payments were made, citing Rule 4 (7) of the Cenvat Credit Rules, 2004. Reference was made to a judgment by the Hon'ble High Court of Madras, emphasizing that incorrect availing of credit does not automatically mandate payment of interest and penalty. Detailed supplier-wise bill information and credit availing dates were provided, which were not previously submitted to the adjudicating authority. The advocate requested a remand to provide proof that credits were used only post-payment.

On the contrary, the respondent's representative supported the adjudication without any additional arguments. After hearing both sides and reviewing the case facts, it was noted that while the appellant claimed credit utilization post-payment, they failed to provide evidence to the adjudicating authority. Reference was made to the judgment in the case of Strategic Engineering, where the High Court of Madras clarified the applicability of Rule 14 of the Cenvat Credit Rules, emphasizing that mere availing of credit does not warrant interest and penalty. The court's ruling in Strategic Engineering was deemed applicable to the present case.

Consequently, the matter was deemed necessary to be remanded to the adjudicating authority for a fresh examination, considering the principles established in the Strategic Engineering case. The appellant was granted the opportunity to present detailed bill-wise information to demonstrate that the availed credits were indeed utilized only after payments were made to the service provider. The appeal was disposed of through remand, ensuring the appellant's right to a fair hearing and submission of additional evidence.