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2017 (12) TMI 1275 - AT - Service TaxScope of SCN - CENVAT credit on Capital goods - Held that - It is a settled principle of law that no demand can be sustained unless the same is based on a proposal in the SCN - Once the SCN do not propose to deny any CENVAT Credit availed on items treated as capital goods, the same could not have been taken up and adjudicated in the Impugned Order - the demand of INR 7,63,18,307/- confirmed in impugned order on this issue is not sustainable and is set aside. Excess utilisation of credit - adjustment with the shortfall - Held that - it is evident from the Table that the Appellant was entitled to further utilise credit amounting to INR 20,66,664/- and INR 90,78,879/- in the months of November and December, 2004 and there is no bar in law to restrict the utilisation of such quota of entitlement in the subsequent months. Thus, the entitlement of INR 1,11,45,561/- (INR 20,66,664/- INR 90,78,897/-) is in excess of INR 59,77,551/- which is the short fall in the month of January, 2005 - reliance placed in the case of Vijyanand Roadlines Ltd. Vs. Commissioner of Central Excise, Belgaum 2006 (12) TMI 56 - CESTAT,BANGALORE where it was held that utilisation is not restricted to monthly or quarterly basis and it can be utilised at any point of time - the demand of INR 59,77,551/- confirmed on this issue is thus not sustainable and is set aside. Appeal allowed - decided in favor of appellant.
Issues:
1. Disallowance of credit on capital goods. 2. Excess utilization of CENVAT credit. 3. Applicability of service tax on interconnection usage charges. Issue 1: Disallowance of credit on capital goods: The Appellant, a telegraph operator, availed CENVAT credit on inputs, input services, and capital goods for discharging its service tax liability. The Show Cause Notice alleged that the Appellant failed to maintain separate accounts for taxable and non-taxable services, leading to excess utilization of CENVAT credit. The Order-in-Original disallowed credit on capital goods amounting to INR 7,63,18,307 and demanded its recovery. However, the Appellant argued that the Show Cause Notice did not propose disallowance of credit on capital goods, limiting the scope of adjudication. The Tribunal held that the demand on this issue was unsustainable as it went beyond the Show Cause Notice, following the principle established in legal precedents. Issue 2: Excess utilization of CENVAT credit: The Appellant contended that it did not exceed the 20% limit of CENVAT credit utilization for service tax liability on output services, as there was no monthly utilization bar. Detailed tables showed that the Appellant underutilized credit in certain months, justifying the excess utilization in subsequent periods. The Tribunal agreed with the Appellant's argument, citing legal precedents that utilization is not restricted to monthly or quarterly basis. Consequently, the demand of INR 59,77,551 on this issue was deemed unsustainable and set aside. Issue 3: Applicability of service tax on interconnection usage charges: The Appellant argued that interconnection usage charges were not subject to service tax, supported by industry practices and a CBEC circular. They contended that the demand, based solely on ST-3 Returns, for an extended period was not sustainable. The Tribunal acknowledged the Appellant's bona fide actions and held that the demand for the extended period lacked merit, especially considering the complexity of legal provisions involved. The demand was set aside, and the Appellant's appeal was allowed with consequential relief. In conclusion, the Tribunal ruled in favor of the Appellant on all issues, setting aside the demands related to disallowed credit on capital goods, excess utilization of CENVAT credit, and the applicability of service tax on interconnection usage charges. The impugned order was modified accordingly, and the appeal was allowed with consequential relief, while keeping the issue of limitation open.
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