2017 (10) TMI 663 - AT - Service Tax

Utilization of CENVAT credit - GTA services - Sub-Rule (4) of Rule 3 of CCR, 2004 - penalty reduced to 25% - Held that - As per the explanation to the Rule 3 of the CCR, 2004, it has been specifically incorporated w.e.f. 01.07.2012 that CENVAT credit cannot be used for payment of service tax on GTA as service recipient and if there is a violation of this rule, then, the assessee attracts penal action u/r 15 of CCR, 2004 for payment of GTA services as service recipient. But despite that, the assessee utilized the credit for payment - there is a clear violation of the rule inspite of the knowledge on the part of the assessee. Therefore, in view of such circumstances, the reduction of penalty to the extent of 25% of the wrongly utilized cenvat credit is not sustainable in law - appeal allowed - decided in favor of Revenue.

Summary

Issues:
- Improper utilization of cenvat credit for payment of service tax on GTA services as a service recipient
- Reduction of penalty to 25% by the Commissioner (A)
- Appeal against the reduction in penalty

Analysis:
1. Improper Utilization of Cenvat Credit:
The case involved the appellant, engaged in manufacturing MET Coke and Coking Coal, who utilized cenvat credit for payment of service tax on GTA services as a service recipient, despite being informed by the Range Officer that they were not eligible to do so. The contravention of Sub-Rule (4) of Rule 3 of CCR, 2004 led to the issuance of a showcause notice for disallowing the payment of service tax, interest, and imposition of penalty under relevant provisions. The Joint Commissioner confirmed the demand and imposed a penalty, which was later reduced to 25% by the Commissioner (A) on appeal.

2. Reduction of Penalty to 25%:
The appellant appealed against the reduction of penalty to 25%, arguing that the reduction was in violation of the Rule, as the utilization of cenvat credit for payment of service tax on GTA services was a clear contravention of Rule 3 of CCR, 2004. The appellant contended that the Commissioner (A) wrongly concluded that the appellant's financial crisis justified the reduction in penalty. The appellant highlighted the specific prohibition under Rule 3 of CCR, 2004, which disallows the use of cenvat credit for payment of service tax on GTA services as a service recipient.

3. Appeal Against Reduction in Penalty:
The appellate tribunal, after hearing the arguments, found that the reduction of penalty to 25% was not sustainable in law. Despite the financial difficulties faced by the appellant, the tribunal emphasized that the deliberate violation of the rule warranted penal action. The tribunal noted that the Commissioner (A) had reduced the penalty without legal reasoning and provisions of law, leading to the decision to set aside the impugned order and restore the penalty imposed by the Joint Commissioner. Consequently, the appeal of the department was allowed, and the penalty of ?22,08,563 under Rule 15(1) of CCR, 2004 and relevant sections of the FA, 1994 and CEA, 1944 was upheld.

In conclusion, the tribunal upheld the penalty imposed on the appellant for the improper utilization of cenvat credit for payment of service tax on GTA services, setting aside the reduction in penalty by the Commissioner (A) and emphasizing the need for compliance with the provisions of Rule 3 of CCR, 2004 regarding the use of cenvat credit.