2018 (12) TMI 863 - AT - Service Tax

Reversal of CENVAT Credit - Rule 6(3A) of the CENVAT Credit Rules - Held that - Appellants are providing both taxable and exempted output services. They avail of the CENVAT Credit in respect of various inputs and input services, used by them for providing the output services. Since they are not maintaining the separate accounts in respect of the inputs/ input services consumed by them for providing taxable/ exempted output services they reverse the credit availed by them, as provided for by rule 6(3A) of the CENVAT Credit Rules, 2004. Since Appellants themselves admit to taking the excess credit they at certain points of time and have subsequently adjusted the same, they are required to pay interest during the period they had taken the excess credit. It is quite evident that appellants themselves are also not disputing the facts that they had availed excess credit at times and had also short paid the service tax due. The claim of the appellant that they have reflected the said service tax liability in their ST-3 return and had also paid the same by showing the debit entries in their return from the CENVAT Credit account is nothing but a hollow argument as they had not filed the ST-3 returns by the due date. These returns for the year 2008-09 and 2009-10 as per their own admission have been filed only in the year 2010-11. Since these returns have been filed not by the due date but after the delay of one to two years, appellant had deliberately being suppressing their tax liability and evading the payment of tax. Intention to evade payment of tax which very clear, from the manner they manipulated the ratio for reversal of credit. Demand of Interest - Held that - Appellants have by not computing the amount of reversal, appropriately have short reversed the credit initially taken by them resulting in excess credit with them. Reversal by way of debit entry in the CENVAT credit account is utilization of the Cenvat Credit taken - interest rightly demanded. Penalty - Held that - Since appellants have in fact suppressed the facts by not filing the ST-3 return with the intention to evade payment of Service Tax, all the ingredients for invocation of the Section 78 of the Finance Act, 1994 satisfied in the present case - all the ingredients for invoking extended period are available, Section 78 for imposing mandatory penalty is invokable. Appeal allowed in part.

Summary

Issues Involved:
1. Reversal of CENVAT Credit under Rule 6(3A) of the CENVAT Credit Rules, 2004.
2. Short payment of service tax and demand of interest.
3. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
4. Invocation of extended period of limitation.

Issue-wise Detailed Analysis:

1. Reversal of CENVAT Credit under Rule 6(3A) of the CENVAT Credit Rules, 2004:
The appellants, providing both taxable and exempted services, were required to reverse the credit attributable to exempted services under Rule 6(3A). They incorrectly calculated the taxable CENVAT ratio as 10% instead of the correct 9.4%, leading to a short reversal of ?1.01 crore. The appellants argued that this error was due to rounding off percentages, which they claimed was a standard practice. However, the tribunal found that Rule 6(3A)(c) provides a specific method for determining the amount to be reversed, and this method does not support rounding off percentages. The tribunal held that the appellants' method was not in accordance with the law and rejected their arguments, emphasizing that statutory provisions must be followed as prescribed.

2. Short Payment of Service Tax and Demand of Interest:
The appellants admitted to short paying service tax amounting to ?5,99,57,014 for the periods 2008-09 and 2009-10. They argued that since they had sufficient credit balance and had not utilized the excess credit, no interest should be levied. However, the tribunal, referencing the Supreme Court's decision in Indo Swift, held that interest is due on wrongfully taken or utilized CENVAT credit irrespective of its utilization. The tribunal upheld the demand for interest on the short payment of service tax, stating that interest is a civil liability and must be complied with.

3. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The tribunal upheld the penalties imposed under Section 78 for suppression of facts with intent to evade payment of service tax, referencing the Supreme Court's decisions in Dharmendra Textile Processors and Rajasthan Spinning & Weaving Mills. The tribunal found that the appellants had deliberately suppressed their tax liability by not filing ST-3 returns on time. However, the tribunal set aside the penalty under Section 76, as the proviso to Section 78, effective from 10.05.2008, states that if a penalty is payable under Section 78, the provisions of Section 76 shall not apply. The penalty under Section 77 for non-filing of returns was upheld.

4. Invocation of Extended Period of Limitation:
The tribunal found that the appellants had suppressed facts and contravened the provisions of Rule 6(3A)(c) with the intention to evade payment of service tax. Therefore, the invocation of the extended period of limitation under the proviso to Section 73 of the Finance Act, 1994, read with Rule 14 of the CENVAT Credit Rules, 2004, was justified.

Conclusion:
The tribunal upheld the order confirming the demand for service tax, interest, and penalties under Section 78 and 77, while setting aside the penalty under Section 76. The appeals were dismissed except to the extent of the penalty under Section 76.