2009 (7) TMI 136 - AT - Service Tax

Common input services cenvat credit exempted and taxable output services - A show cause notice was issued to the appellant stating that they have availed credit on inputs services viz, goods transport services in respect of both dutiable and exempted products and since they have not maintained separate accounts, they were liable to pay duty @10% in respect of exempted products cleared by them. The appellants have taken credit of service tax in the month of December 2005 and have reversed the entire amount of Rs. 86,665/- in March 2006 held that - by availing the credit in December 2005, the appellant has committed an error and for the same the appellant is liable to pay penalty - demand of duty and interest against the appellant dropped - penalty of Rs.10,000/- on the appellant confirmed.

Summary

Issues:
- Appeal against order-in-appeal confirming demand for duty on exempted products due to credit availed on inputs services without maintaining separate accounts.
- Appellant's argument of credit taken by mistake, reversed voluntarily, and no duty payment required.
- Appellant's reliance on judgments supporting reversal of credit and no duty payment.
- Respondent's reliance on a different judgment.
- Tribunal's decision on imposing penalty but dropping the demand for duty and interest.

Analysis:
1. The appeal before the Appellate Tribunal CESTAT, Mumbai involved a challenge against an order-in-appeal confirming a demand for duty on exempted products due to the appellant availing credit on inputs services without maintaining separate accounts. The appellant, engaged in the manufacture of refined edible oil, vanaspati oil, and acid oil, faced a duty imposition of Rs.1,90,960/- along with interest and penalty of Rs.10,000/-, which was confirmed in the order-in-appeal by the Assistant Commissioner, Central Excise Mumbai.

2. The appellant contended that they had cleared exempted goods in February 2005 but mistakenly took credit for inputs services in December 2005, which they voluntarily reversed in March 2006. The appellant argued that since the credit was reversed promptly and it was the first instance of availing such credit, no duty payment should be required for the exempted products.

3. The appellant relied on various judgments supporting their position, including Ruchi Infrastructure Ltd. v. CCE, Magtech Mobilespares Pvt. Ltd. v. CCE, and Habib Agro Industries v. CCE, emphasizing the importance of voluntarily reversing credit and the inappropriateness of demanding duty payment after such reversal.

4. On the other hand, the respondent relied on Kamra Bottling Co. v. CC Jaipur to support a different stance. After hearing both parties, the Tribunal found that the appellant had indeed made an error by availing credit in December 2005 instead of maintaining proper timing with the clearance of exempted products. Consequently, the Tribunal dropped the demand for duty and interest but confirmed the penalty of Rs.10,000/- on the appellant.

5. In conclusion, the Tribunal partially allowed the appeal by dropping the demand for duty and interest against the appellant but upholding the penalty. This decision balanced the appellant's voluntary reversal of credit with the acknowledgment of the error made in availing the credit at the wrong time, resulting in a penalty imposition while relieving the appellant from additional duty payment.