2019 (4) TMI 27 - AT - Service Tax

CENVAT Credit - wrong utilization of CENVAT Credit - Rule 4(2)(a) of the CENVAT Credit Rules, 2004 - whether the confirmation of demand of wrongly utilized 50% Credit in respect of capital goods and interest thereon by the Commissioner is in order and subsequently, whether the waiver of penalty under Section 78 ibid is legally correct? Held that - Sub-Rule (4) of Rule 4 of the CENVAT Credit Rules, 2004 states that Credit in respect of capital goods shall not be allowed in respect of that value of capital goods which the manufacturer or provider of output service claims depreciation under Section 32 of the Income Tax Act, 1961. Thus, availing credit on capital goods when depreciation was also claimed is against the provisions of law. The Department had sought the assessee to reverse the Credit. The assessee though availed Credit on capital goods, had not utilized it. For this reason, the assessee contended that the availment of Credit was only a book entry and therefore, the demand of interest cannot sustain. The Hon ble High Court in the case of Commissioner of C.Ex., Madurai Vs. M/s. Strategic Engineering (P) Ltd. 2014 (11) TMI 89 - MADRAS HIGH COURT had held that the demand of interest or penalty cannot sustain when the credit wrongly taken has been reversed - In the case before us, the appellant has not reversed the wrongly availed Credit. Actually, there would be no meaning in recovering the wrongly availed 50% Credit as the appellant would be eligible for this Credit in the next financial year. It may be correct that they have not utilized the Credit for payment of duty/tax. Time limitation - Held that - The Credit having been held to be wrongly availed and ordered to be adjusted to the subsequent financial year, the plea of the appellant that the demand of interest alone is hit by limitation cannot sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availment of 100% CENVAT Credit on capital goods instead of restricting to 50%.
2. Demand of excess Credit, interest, and penalty under CENVAT Credit Rules.
3. Waiver of penalty under Section 78 of the Finance Act, 1994.

Issue 1: Availment of 100% CENVAT Credit
The dispute arose from M/s. BSNL availing 100% CENVAT Credit on capital goods instead of the mandated 50% for the first financial year. The Commissioner confirmed the demand of excess Credit amounting to ?1,48,42,336 for the period from 2006-07 to 2010-11. The appellant contended that the unutilized Credit became eligible in the subsequent year and argued against the recovery of the eligible sum. However, the tribunal found the appellant in the wrong for availing 100% Credit instead of 50% as per Rule 4(2)(a) of the CENVAT Credit Rules, 2004.

Issue 2: Demand of Excess Credit, Interest, and Penalty
The Commissioner confirmed the demand of excess Credit and interest, but waived the penalty under Section 80 of the Act. The tribunal upheld the demand of ?1,48,42,336 as justified by law, considering the wrong availment for multiple years. It noted that the recovery of wrongly taken Credit was to be treated as on the first day of the subsequent financial year. The tribunal emphasized that interest liability applied due to the benefit derived from the excess Credit, which was not reversed immediately upon realization of the error.

Issue 3: Waiver of Penalty under Section 78
The Revenue appealed against the waiver of penalty under Section 78 of the Act. The tribunal considered the Revenue's objection regarding the waiver but noted that subsequent events, as per Circular No. 1063/2/2018-CX, indicated that penalties should not be imposed on Government or PSU Departments. Consequently, the Revenue's appeal was dismissed.

In conclusion, the tribunal dismissed both appeals, upholding the demand of excess Credit and interest while waiving the penalty under Section 78. The judgment emphasized compliance with CENVAT Credit Rules and the consequential interest liability on wrongly availed Credit.