2009 (4) TMI 151 - AT - Service Tax

Cenvat Credit accumulated credit of service tax as on 10.09.2009 before introduction of Cenvat credit rules, 2004 - Show cause notice dated 10.02.2006 was issued proposing to disallow credit on input services availed during the period 1.7.2003 to 10.09.2004. The Original Authority confirmed the demand of tax of Rs. 2,25,520/- for wrong utilisation of credit balance lying as on 10.09.2004 in Cenvat Account and Rs. 20,501/- on irregular availment of credit and imposed penalty of equal amount along with interest held that - it is clear that as per transitional provision under Rule 11 of the Rules, 2004, credit can be utilised in accordance with Rule 3 (4) of Cenvat Credit Rules, 2004 for payment of any duty of excise on any final product. Therefore, allegation made in the show cause notice is not correct. - As the denial of credit of Rs. 2,25,520/- is set aside and the issue involved is interpretation of provisions of law, the imposition of penalty is not warranted. Accordingly, penalties are set aside.

Summary

Issues:
- Disallowance of credit on input services availed
- Utilization of credit balance in Cenvat Account
- Allegation of wrong utilization of credit for payment of central excise duty
- Bar on utilization of credit under Rule 4 of Cenvat Credit Rules, 2004
- Demand of tax on irregular availment of credit
- Applicability of Rule 3 (1) of Service Tax Credit Rules, 2002
- Invocation of extended period of limitation
- Interpretation of transitional provision under Rule 11 of Cenvat Credit Rules, 2004
- Denial of credit on input-service
- Imposition of penalty

Analysis:

The case involved the disallowance of credit on input services availed by the appellants, who were engaged in the manufacture of Power Distribution Transformers and registered with the Service Tax Authority. The show cause notice alleged wrong utilization of credit balance in the Cenvat Account for payment of central excise duty instead of service tax, as per Rule 11 of Cenvat Credit Rules, 2004. The Original Authority confirmed the demand of tax and imposed penalties, which were upheld by the Commissioner (Appeals).

The appellant contested the tax demand on grounds of merit and limitation. The advocate argued that there was no bar under Rule 4 of Cenvat Credit Rules, 2004 for utilizing credit on central excise duty. The demand of tax was also challenged as time-barred. The Commissioner (Appeals) upheld the decision based on Rule 3 (1) of Service Tax Credit Rules, 2002, stating that the appellant wrongly availed and utilized the credit.

The DR reiterated the findings, emphasizing the non-fulfillment of conditions under Rule 3 (1) of the Rules and non-disclosure of facts to the Revenue, invoking the extended period of limitation. However, after hearing both sides and examining the records, it was found that the transitional provision under Rule 11 of Cenvat Credit Rules, 2004 allowed credit utilization for payment of any duty of excise on any final product.

The Tribunal concluded that the denial of credit on input-service was not sustainable, as the appellant had not violated any provisions of law. The denial of credit amounting to Rs. 20,501 was upheld, but the denial of credit of Rs. 2,25,520 was set aside. Since the issue involved interpretation of legal provisions, the imposition of penalties was deemed unwarranted, leading to penalties being set aside. The appeal was disposed of accordingly with consequential reliefs.