2018 (12) TMI 371 - AT - Central Excise

CENVAT Credit - recovery of proportionate credit in relation to amount adjusted from the invoices as liquidated damages - Circular No. 122/3/2010-ST dated 30.04.2010 - Rule 3 of CCR - Held that - The provider of taxable service is allowed to take the credit of the amount paid on input services received i.e. the gross amount charged as consideration for the purpose of services and such credit shall be allowed on or after the day which the payment is made of the value of input services. This value has to be computed in accordance of the various sub-rules of Section 67 vide which valuation is the cost incurred by the service provider and charged. Circular No. 122 of 34/2010 - Held that - Circular is about clarification regarding availment of credit on input services. More specifically about a doubt raised as to whether the receiver of input service can take credit only after the full value i.e. indicated in the invoice / bill/ challan rest by the service provider and also the service tax payable thereon has been paid and as to whether when the service receiver does not pay the full invoice value and the service tax indicated thereon due to some reasons - The order under challenge is silent about Circular despite it was duly brought to the notice of the adjudicating authority below and despite the fact that it covers the issue involved herein. The authority below has opted to rely upon Circular No. 877 dated 17.11.2008. The perusal thereof shows that it is about clarification regarding reversal of cenvat credit in case of trade discount. This perusal itself is sufficient to hold that the Circular is not applicable to the facts in hand. The Commissioner(Appeals) has wrongly placed reliance on the said Circular. Irrespective that this Circular is about the excise duty but the intention of the Revenue herein is also same as in Circular No. 122 i.e. irrespective the price is reduced subsequent to raising the invoice the credit can still be availed on the duty paid in accordance of the amount shown in the invoice. This finding is opined to be sufficient to hold that the findings of Commissioner(Appeals) are erroneous on the face of it. When the service tax paid by the provider has not varied cenvat credit cannot be reduced no question of denying availment at all arises. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Alleged wrongful availment of cenvat credit on service tax
- Violation of Rule 3(1) & 4(7) of Central Excise Rules, 2004
- Confirmation of demand by Adjudicating Authority
- Appeal before Commissioner(Appeals) and subsequent rejection
- Appellant's argument on liquidated damages and Circular No. 122/3/2010-ST
- Appellant's reliance on past decisions and circulars
- Department's argument on permanent deduction and Rule 4(7) violation
- Commissioner(Appeals) decision and reliance on Circular 877/15/2008
- Tribunal's analysis of statutory provisions and Circulars
- Tribunal's decision setting aside the impugned order and allowing the appeal

Analysis:

The judgment revolves around the alleged wrongful availment of cenvat credit on service tax by the appellant, leading to a dispute regarding the violation of Rule 3(1) & 4(7) of Central Excise Rules, 2004. The Department issued a Show Cause Notice proposing the recovery of the disputed amount, which was confirmed by the Adjudicating Authority. The appellant appealed before Commissioner(Appeals), who upheld the order, resulting in the appellant approaching the Tribunal for redressal.

The appellant argued that the amount adjusted as liquidated damages was in consideration of service deficiency and was accounted for in their books. They relied on Circular No. 122/3/2010-ST to support their claim that the credit attributable to liquidated damages was admissible. Additionally, the appellant cited past decisions and circulars to strengthen their case, emphasizing that the demand was revenue-neutral and penalties were unwarranted.

In response, the Department contended that the liquidated damages were a permanent deduction due to service non-performance, justifying the violation of Rule 4(7) of CCR. They argued that Circular 877/15/2008 supported their stance on the inadmissibility of the credit. The Commissioner(Appeals) also relied on Circular 877/15/2008 in their decision.

The Tribunal analyzed the relevant statutory provisions and Circulars, notably Circular No. 122/3/2010-ST and Circular 877/15/2008. The Tribunal found the Commissioner(Appeals)' reliance on Circular 877/15/2008 misplaced and held that Circular No. 122/3/2010-ST supported the appellant's position. Citing past tribunal decisions and legal principles, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellant.

In conclusion, the Tribunal's detailed analysis of the legal provisions, circulars, and precedents led to the setting aside of the Commissioner(Appeals)' decision, highlighting the importance of correct interpretation and application of relevant laws and circulars in tax matters.