2022 (2) TMI 792 - AT - Service Tax

Recovery of interest and imposition of penalty under Sections 77 78 is justified - Suo moto reversal of excess CENVAT Credit - excess credit was never utilized - time limitation - contumacious conducts like suppression or falsification of record - HELD THAT - The impugned order is under the teeth of the Hon'ble Supreme Court as per the law laid down in the case of Chandrapur Magnet Wires (P) Ltd. 1995 (12) TMI 72 - SUPREME COURT , wherein it has been held that the CENVAT Credit taken and which have been suo moto reversed without utilization, amounts to CENVAT Credit never to have been taken. Rule 14(1)(i) of CENVAT Credit Rules, 2004 provides that where the CENVAT Credit had been taken wrongly but not utilized, the same shall be recovered under the provisions of Section 11A of the Central Excise Act, 1944 and Section 73 of the Finance Act, 1994 as the case may be. Further Rule 14(1)(ii) provides that where CENVAT Credit has been taken and utilized wrongly or has been erroneously refunded the same shall be recovered along with interest - there is clear distinction made in the statute that interest is to be recovered only in case of utilization of CENVAT Credit taken wrongly. Further admitted fact of the present case is that the appellant had given cogent explanation that the excess credit occurred due to system error. The appellant had reversed the credit suo moto under proper intimation to the Department and also had their quantum of refund reduced proportionately. It is apparent that the show-cause notice is issued after more than three years from the date of reversal and its intimation to the Department. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether demand of excess CENVAT Credit by the impugned order along with interest and penalty is justified.

Analysis:
The appeal revolved around the question of whether the demand of excess CENVAT Credit, which was suo moto reversed by the appellant without utilization, was justified. The appellant, a company engaged in providing IT-related services, inadvertently availed inadmissible CENVAT credit due to a technical fault in the accounting software. Upon discovery of the error, the appellant took corrective actions by reversing the credit in the register, revising the ST-3 return, and intimating the revenue department about the reversal. Despite these actions, an audit conducted in 2014 raised concerns about the credit availed. Subsequently, a show-cause notice was issued, leading to the confirmation of disallowance of the credit, imposition of interest, and penalties by the Commissioner.

The appellant contended that the excess credit was reversed under intimation to the revenue department, citing the Supreme Court's decision that reversed credit amounts to credit never taken. The appellant also relied on Rule 14 of the CENVAT Credit Rules, 2004, which states that no interest is payable if credit is reversed without utilization. Additionally, the appellant argued that the show-cause notice issued after three years from the reversal was time-barred, and there was no evidence of contumacious conduct. The Revenue relied on a Supreme Court ruling to support its position.

The tribunal analyzed the legal provisions and precedents cited by both parties. Referring to the Supreme Court's decision and Rule 14 of the CENVAT Credit Rules, 2004, the tribunal concluded that interest is recoverable only when wrongly taken credit is utilized. Since the appellant had reversed the credit without utilization and provided a valid explanation for the error, the tribunal found the demand for interest and penalties unjustified. Moreover, the show-cause notice issued after three years from the reversal lacked merit. Consequently, the tribunal set aside the impugned order and allowed the appeal, providing consequential relief as per the law.