2018 (9) TMI 1595 - AT - Service Tax

Penalty - Interest - fraudulent availment of CENVAT credit - the appellant has reversed the credit before utilization - Held that - The Hon ble High Court of Madras in the case of Strategic Engineering P. Ltd. 2014 (11) TMI 89 - MADRAS HIGH COURT has held that demand of interest and penalty cannot sustain when the credit has been reversed before utilization - in the present case even before providing output service the assessee has reversed the credit - demand of interest and penalty do not sustain - decided in favor of assessee.

Summary

Issues:
Penalty imposed on the assessee for availing credit on input services before rendering output service and reversal of the credit before utilization. Department's appeal against waiving the interest demand.

Analysis:

1. Penalty Imposed on the Assessee:
The assessee, registered under various services, availed credit on input services before providing output services like construction and renting of immovable property. Upon audit, the department noticed this and issued a show cause notice demanding the wrongly availed credit, interest, and penalty. The original authority confirmed the demand but set aside the interest, imposing an equal penalty. The assessee argued that the credit was legitimately availed as it was intended for output services. The Commissioner acknowledged the reversal of credit before utilization but still imposed a penalty under section 78 of the Finance Act, 1994. The Tribunal referred to a High Court judgment stating that when credit is reversed before utilization, interest and penalty cannot be sustained. Consequently, the penalty imposed on the assessee was set aside.

2. Department's Appeal Against Waiving Interest:
The department filed an appeal against the waiver of interest by the adjudicating authority. However, the Tribunal, following the decision in a previous case, held that when credit is reversed before utilization, the demand for interest and penalty cannot be upheld. The Tribunal found no reason to interfere with the waiver of interest and dismissed the department's appeal. The impugned order was modified to set aside the penalty imposed on the assessee, thereby allowing the appeal filed by the assessee and dismissing the appeal filed by the department.

In conclusion, the Tribunal ruled in favor of the assessee by setting aside the penalty imposed, citing the reversal of credit before utilization as a valid reason. The waiver of interest was upheld based on legal precedents, and the department's appeal against it was dismissed.