2018 (11) TMI 1524 - AT - Service Tax

Demand of interest and penalty - irregularly availed CENVAT Credit reversed before issuance of SCN - Interpretation of statute - the word or whether can be substituted with the word and appearing in Rule 14 - Held that - Interest is usually payable when the amount due is not paid back or amount deposited as tax is taken away erroneously. In the instant case, the duty paid against which cenvat credit was noted in the books of account was all along lying with the government treasury and it was neither utilised by way of adjustment against duty demand nor taken as a refund erroneously for which the appellant can be punished with imposition of interest for the amount which had never come to its account for utilisation. Demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
Availment of inadmissible cenvat credit leading to imposition of interest and penalty.

Analysis:
The case involved the appellant, a banking and financial company, availing cenvat credit against various services, which was later deemed inadmissible during an audit. The appellant reversed the entire amount before a show-cause notice was issued. The main contention was the imposition of interest and penalty by the Commissioner (Appeals).

During the appeal, the appellant argued that being a cooperative bank, no personal benefit was derived from the inadmissible credit, and the reversal was done before any punitive action. Citing legal precedents, the appellant claimed that mere entry in the cenvat credit register does not imply fraudulent intent or evasion of tax, thus challenging the penalty.

On the other hand, the department supported the Commissioner's decision, citing legal judgments to justify the imposition of interest, emphasizing that noting credit in the register amounts to taking credit.

The Tribunal analyzed Rule 14 of the Cenvat Credit Rules, which mandates recovery of wrongly taken or erroneously refunded credit along with interest. The Tribunal observed that the rule lacked clarity, leading to confusion and litigation. Noting subsequent amendments to the rule, the Tribunal highlighted the distinction between wrongly taken but not utilized credit and wrongly taken and utilized credit.

After careful consideration of legal precedents and the factual context, the Tribunal found that the appellant had not utilized or taken the credit wrongly, as the duty paid against which the credit was noted remained with the government. Consequently, the Tribunal allowed the appeal, setting aside the imposition of interest and penalty by the Commissioner (Appeals).

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the distinction between wrongly taken and utilized credit, ultimately setting aside the imposition of interest and penalty by the Commissioner (Appeals).