2018 (4) TMI 484 - AT - Service Tax

Restriction of utilization of CENVAT credit - Held that - once the assessee becomes entitled to the credit, its utilization cannot be restricted on the ground that he has not utilized the same in the period for which it could have been used - the whole issue is revenue neutral. There is no element of suppression or malafide intention as the Appellant by non utilizing the credit early did not cause any loss to the exchequer. Appeal allowed - decided in favor of appellant.

Issues:
1. Incorrect adjustment of cenvat credit for service tax payment.
2. Alleged contravention of Cenvat Credit Rules, 2004 and Service Tax Rules, 1994.
3. Non-compliance with Rule 6 (4B) regarding excess amount adjustment.
4. Demand of service tax and imposition of penalties.
5. Interpretation of Rule 6 (3) (c) of Cenvat Credit Rules, 2004.
6. Suppression and limitation period invocable for penalties.

Analysis:
1. The case involved a dispute regarding the incorrect adjustment of cenvat credit for service tax payment by the Appellant. The show cause notice alleged that the Appellant wrongly adjusted cenvat credit for service tax payment in January 2005, which was deemed inadmissible under Rule 6 (3) of Cenvat Credit Rules, 2004 and Rule 6 (4A) of the Service Tax Rules, 1994. It was further claimed that the Appellant contravened Rule 6 (4B) by not following the conditions for suo moto adjustments, leading to a proposed demand of service tax and penalties.

2. The Appellant argued that they were entitled to utilize cenvat credit up to 20% of the output service tax payable by them. They contended that the credit available for the months preceding January 2005 was utilized in that month, and there was no excess utilization of credit. They relied on precedents and contended that there was no suppression or malafide intention, thus penalties should not be imposed.

3. The Revenue supported the impugned order, emphasizing that the Appellant's failure to utilize available credit for service tax payment did not entitle them to exceed the 20% limit set by the Cenvat Credit Rules, 2004. The Revenue maintained that there was a clear restriction on credit utilization, justifying the demand made.

4. The Tribunal, after considering both parties' submissions, found that the Appellant had the right to utilize the disputed cenvat credit during the previous quarter but chose to pay in cash instead. In the subsequent quarter, they utilized the available credit for service tax payment, which was deemed permissible as the credit had accrued to them for utilization. The Tribunal cited a precedent to support its view that credit accumulation does not lapse due to non-utilization and that the demand was revenue neutral. Consequently, the Tribunal set aside the impugned order, ruling in favor of the Appellant and rejecting the penalties due to the absence of suppression or malafide intent.

5. The judgment highlighted the importance of correctly interpreting the Cenvat Credit Rules, 2004 and ensuring compliance with the prescribed limits for credit utilization. It emphasized that the utilization of credit should align with the rules and that penalties should only be imposed in cases of suppression or malafide intentions, which were absent in this particular case. The Tribunal's decision provided clarity on the issue and granted relief to the Appellant based on the merits and the limitation period.

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