2018 (5) TMI 610 - AT - Service Tax

Interest in credit reversed - penalty - case of appellant is that the appellant had not utilised the CENVAT credit which was subsequently reversed on their own therefore the interest is not chargeable on the said CENVAT credit - time limitation - Held that - In the present case the CENVAT credit pertaining to the period 2004-08 was reversed by the appellant in 2008 and declared in the ST-3 return, there was no suppression of fact on part of the appellant, therefore even for interest the SCN should have been issued within the normal period of one year from the date of reversal of CENVAT credit. Penalty - Held that - though the appellant have availed the credit but they on their own reversed it and declared in their ST-3 return, in that case even the SCN for demand under Section 73(1) should not have been issued - there is no question of penal provision. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Demand of CENVAT credit, interest, and penalty based on Rule 14 of CENVAT Credit Rules, 2004.
2. Contesting the demand of interest and penalty.
3. Interpretation of Section 73(1) of the Finance Act, 1994.
4. Application of Rule 14 of CENVAT Credit Rules.
5. Time limit for issuing show-cause notice for interest and penalty.
6. Invocation of extended period for demanding interest.
7. Applicability of limitation on interest liability.
8. Assessment of demand of interest and penalty based on facts and legal provisions.

Analysis:
The case involved the appellant reversing CENVAT credit on the advice of their Statutory Auditor without paying interest on the inadmissible credit. The show-cause notice proposed a demand for CENVAT credit, interest, and penalty under Rule 14 of CENVAT Credit Rules, 2004. The Adjudicating Authority confirmed the demand, leading to the appellant filing an appeal. The appellant contested the demand of interest and penalty, arguing that they had paid Service Tax suo-moto before the notice was issued. They claimed that interest should not be charged as the CENVAT credit was not utilized, and no amount was due after the ST-3 return was filed. The appellant also argued that the show-cause notice for interest was time-barred based on various judgments cited.

The Revenue contended that even though the appellant reversed the credit, interest was still chargeable as per Rule 14. They argued that the extended period for demanding interest was justified due to the appellant's wrongful availment of credit. The Revenue relied on the judgment in the case of M/s Ind-Swift Laboratories Ltd. to support their position.

The Tribunal analyzed the submissions and found that no show-cause notice should have been issued for the demand of CENVAT credit, considering the appellant's actions. Regarding interest, the Tribunal held that the demand was time-barred as the extended period was not applicable due to no suppression of facts by the appellant. The Tribunal referred to previous judgments to support the limitation on interest liability. Consequently, the demand of interest and penalty was set aside, while the CENVAT credit reversal by the appellant was maintained. The penalty imposed by lower authorities was deemed unsustainable, leading to the allowance of the appeal in favor of the appellant.