2017 (10) TMI 739 - AT - Central Excise

CENVAT credit - irregular availment - Rule 4(7) of the CCR, 2004 - Held that - the appellants have taken the ineligible CENVAT credit in violation of the provisions of Rule 4(7), in respect of the input service for which they have not made payment within three months from the date of receipt of invoices - this aspect of availment of CENVAT credit was detected during the audit conducted by the Revenue and thereafter the appellant reversed the entire ineligible credit in their CENVAT credit account in August 2012 and intimated the Department on 22/09/2012. Demand of interest u/r 14 of the CCR, 2004 read with Section 75 of the FA, 1994 - Held that - the appellants have utilised an amount of ₹ 74,33,595/- for payment of service tax on certain services during the period March 2012 to July 2012 - interest upheld. Penalty u/r 15(3) of CCR - Held that - appellants are not liable to penalty because they have been regularly filing their monthly returns in Form ER2 and ST3 and there is no suppression on their part nor Revenue has brought any evidence on record to show that they had any intention to evade payment of tax - penalty set aside. Appeal allowed in part.

Summary

Issues:
Violation of Rule 4(7) of CCR - Availment of ineligible CENVAT credit
Demand of interest and penalty
Applicability of judicial precedents

Violation of Rule 4(7) of CCR - Availment of ineligible CENVAT credit:
The appellant availed CENVAT credit amounting to ?1,23,96,927 based on service tax invoices but failed to pay the service value within three months, violating Rule 4(7) of CCR. Additionally, they claimed credit for services not considered input services. The appellant reversed the ineligible credit before the show-cause notice was issued, arguing that Rule 4(7) does not specify a time limit for reversal. The appellant's counsel cited judicial precedents supporting their position. However, the AR contended that the appellant utilized the ineligible credit, making them liable for interest and penalty.

Demand of interest and penalty:
The Commissioner confirmed the demand of ?76,77,017 and ?3,86,490 as interest under Rule 14 of CENVAT Credit Rules, 2003. The appellant argued that they should not be liable for interest or penalty as they reversed the credit before the show-cause notice. The AR maintained that since the appellant utilized the ineligible credit, they are liable for interest and penalty. The Tribunal found the appellant violated Rule 4(7) and utilized the ineligible credit for service tax payments, upholding the interest demand but dropping the penalty based on regular filing of returns and absence of evidence of tax evasion.

Applicability of judicial precedents:
The appellant relied on judicial precedents to support their argument that they should not be liable for interest or penalty. However, the Tribunal found these precedents inapplicable due to the specific circumstances of the case where the ineligible credit was utilized for service tax payments. The Tribunal partially allowed the appeal, upholding the interest demand under Rule 14 of CENVAT Credit Rules, 2004, but dropping the penalty imposed under Rule 15(3) of the CENVAT Credit Rules, 2004.