2021 (7) TMI 635 - AT - Central Excise

CENVAT Credit - freight component in relation to transport of goods from non-taxable territory to India - as per the lower authorities the said service was exempted from levy of Service Tax during the period when such import of goods took place - appellant was not liable to pay the tax, but he paid erroneously - reverse charge mechanism - penalty - HELD THAT - It is an admitted fact that the first Appellant was not liable to pay Service Tax on the transportation of goods by vessel services. However, the tax was paid and accordingly the Appellant had availed Cenvat credit of the same. The issue above is no longer res integra in view of the judgment of the Hon ble Madras High court in the case of THE COMMISSIONER OF CENTRAL EXCISE, AND SERVICE TAX LARGE TAXPAYER UNIT VERSUS M/S TAMILNADU PETROPRODUCTS LTD, THE CUSTOMS EXCISE AND SERVICE TAX APPELLATE TRIBUNAL 2015 (11) TMI 840 - MADRAS HIGH COURT where it was held that If, upon a misconception of the legal position, the assessee had paid the tax that he was not liable to pay and such assessee also happens to be an assessee entitled to certain credits such as CENVAT Credit, the availing of the said benefit cannot be termed as illegal. The Appellant assessee cannot be asked to reverse the Cenvat credit availed on tax paid under Reverse Charge basis when the payment is not disputed. Penalty - HELD THAT - Revenue has not been able to prove beyond reasonable doubt, the presence of fraud, collusion, willful misstatement or suppression of facts on the part of the appellant assesse. Therefore, imposition of penalty under section 11AC of the Act is unwarranted. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against confirmation of demand of irregular Cenvat credit availed on payment under Reverse Charge Mechanism as Service Tax on freight of imported goods along with interest and penalty for the period 2016-17.

Analysis:
The appellant, a manufacturing company, appealed against the Order-in-Appeal confirming the demand of irregular Cenvat credit amounting to ?14,82,558 for payment made under Reverse Charge Mechanism as Service Tax on freight of imported goods for the period 2016-17. The dispute arose from the appellant availing Cenvat credit on Service Tax paid for transportation of goods from non-taxable territory to India. The Adjudicating authority and the Commissioner (Appeals) upheld the demand. The appellant contended that since the Service Tax was paid under Reverse Charge and for business use only, denial of Cenvat credit was not justified. The Revenue argued in favor of the first appellate authority's order.

The main issue was whether the appellant was entitled to Cenvat credit of Service Tax paid on the freight component for transporting goods from a non-taxable territory to India, even though the service was exempt from Service Tax during the relevant period. The Adjudicating authority confirmed that the services were exempt from Service Tax when the appellant availed them. However, the tax was paid, and the appellant claimed Cenvat credit. Citing a judgment of the Hon'ble Madras High Court, it was established that if a taxpayer pays tax under a misconception and is entitled to certain credits, such availing of benefits cannot be termed illegal. Therefore, the demand for reversing the Cenvat credit and imposing a penalty was set aside as the payment was not disputed, and no evidence of fraud or willful misstatement was found.

In conclusion, the Tribunal allowed the appeal filed by the appellant, granting consequential relief. The judgment emphasized that the appellant could not be asked to reverse the Cenvat credit availed on tax paid under Reverse Charge basis when the payment was undisputed. Additionally, the imposition of a penalty under section 11AC of the Act was deemed unwarranted due to the lack of evidence supporting fraud or willful misstatement by the appellant.