2022 (6) TMI 1084 - AT - Service Tax

Levy of service tax - drilling machine - contention of petitioner is that the provisions of Finance Act, 1994 excluded their area of operations as per the jurisdictional reach of Finance Act, 1994 - Demand of interest and penalty as well - HELD THAT - In view of the settled finding of the Hon ble High Court of Bombay in M/S. GREATSHIP (INDIA) LTD. VERSUS COMMISSIONER OF SERVICE TAX, OIL AND NATURAL GAS COMPANY LTD. 2015 (4) TMI 1006 - BOMBAY HIGH COURT , of non-taxability between July 2009 and February 2010, insofar as the drilling undertaken by the appellant herein for oil exploration, the impugned order is set aside. Demand of Interest - HELD THAT - It is on record that the appellant had voluntarily reversed CENVAT credit alleged to have been taken without authority of law. Insofar as the leviability of interest arise, the decision of the Hon ble High Court of Karnataka in COMMISSIONER OF CENTRAL EXCISE SERVICE TAX LARGE TAXPAYER UNIT, BANGALORE VERSUS M/S BILL FORGE PVT LTD, BANGALORE 2011 (4) TMI 969 - KARNATAKA HIGH COURT has held that Without the liability to pay duty, the liability to pay interest would not arise. The liability to pay interest would arise only when the duty is not paid on the due date. If duty is not payable, the liability to pay interest would not arise. Penalty - HELD THAT - The liability for interest does not merit approval and, consequently, the penalty too is unwarranted. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Taxability of drilling for oil exploration between July 2009 and February 2010
2. Recovery of CENVAT credit on 'input' and 'input service' from October 2008 to February 2010

Analysis:

Issue 1: Taxability of drilling for oil exploration

The appeal raised concerns regarding the taxability of Rs. 60,57,49,157/- for drilling for oil exploration in offshore locations between July 2009 and February 2010. The demand was confirmed under section 73 of Finance Act, 1994, along with interest and penalty under section 78 of Finance Act, 1994. The appellant argued that their operations were excluded from the jurisdiction of the Finance Act, 1994, based on specific notifications extending the provisions of the Act to designated areas. The notifications in question were analyzed, with the appellant contending that their services were non-taxable before July 2009 and after February 2010. Reference was made to a High Court ruling supporting the non-taxability of similar services for the disputed period. The Tribunal found that the 2010 Notification widened the tax scope, bringing certain services into the Service Tax net only after its issuance, thus concluding that the transactions in question were not taxable under the 2009 Notification. Consequently, the demand for tax was deemed unsustainable, leading to the setting aside of the impugned order.

Issue 2: Recovery of CENVAT credit

The second issue pertained to the recovery of CENVAT credit of Rs. 90,02,889/- on 'input' and 'input service' from October 2008 to February 2010, which the appellant had voluntarily reversed. The appellant argued that interest liability should not arise based on a High Court decision emphasizing that interest is compensatory and is imposed when tax payment is withheld. The Tribunal examined the facts, noting that the appellant had promptly reversed the entry upon realizing the mistake, thus not benefiting from the wrong entry. Citing the High Court's ruling, the Tribunal concluded that in the absence of a liability to pay tax, there is no obligation to pay interest. Consequently, the liability for interest and penalty was deemed unwarranted, leading to the setting aside of the impugned order and allowing the appeal.

In summary, the Tribunal ruled in favor of the appellant on both issues, highlighting the non-taxability of services for the specified periods and the absence of interest liability due to the voluntary reversal of CENVAT credit, as supported by relevant legal interpretations and precedents.