2022 (10) TMI 1008 - AT - Service Tax

Short payment of service tax - Works Contract Services - Commercial or Industrial Construction Services - Civil Structures, Construction of Residential Complex - CENVAT Credit - demand alongwith interest and penalty - revenue neutrality - extended period of limitation - HELD THAT - The court below is not in error in observing that the credit of the amount of Rs.3,58,555/- was not available on 31.03.2013. However, in view of the transitional provisions under CGST Act, if the appellant is required to deposit the said amount again in cash, the amount of tax adjusted earlier through cenvat credit will become refundable to them. Thus, the situation is definitely revenue neutral. Further, this amount was admittedly deposited by the service provider with interest. In view of the matter, this appeal is allowed and the demand of Rs.3,58,555/- is set aside. Further, in the facts and circumstances, penalty imposed under Section 78 is also set aside. Appeal allowed - decided in favor of appellant.

Issues:
1. Alleged service tax short payment by the appellant to sub-contractor.
2. Alleged non-payment of service tax on input services received by the appellant.
3. Denial of cenvat credit and imposition of penalty under Section 78.

Analysis:

1. The appellant, registered with the Service Tax Department, was providing taxable services under different heads. A show cause notice was issued alleging service tax short payment to a sub-contractor and non-payment of service tax on input services received. The notice invoked the extended period of limitation, claiming that the tax would have escaped payment if not for an audit uncovering the discrepancies.

2. The appellant received services from a sub-contractor and input services from another party. The sub-contractor issued an invoice for manpower services along with service tax, which the appellant utilized for rendering taxable output services. The appellant claimed cenvat credit for the service tax paid by the sub-contractor, which was deposited with the exchequer.

3. In response to the show cause notice, the appellant explained the basis of receiving services and the payment of service tax. The matter was adjudicated, denying cenvat credit, allowing partial appropriation, and imposing a penalty under Section 78. The appellant appealed to the Commissioner (Appeals) challenging the denial of cenvat credit.

4. The Commissioner (Appeals) upheld the denial of cenvat credit citing Rule 3(4) of Cenvat Credit Rules, stating that the credit must be available on the last date of the month or quarter for payment of duty or tax. The appellant argued that due to the GST regime, if they were required to deposit the input credit amount in cash, the earlier payment through cenvat credit should become refundable, making the situation revenue neutral.

5. Upon considering the arguments, the appellate tribunal found that while the credit was not available on the specified date, the transitional provisions under the CGST Act would make the earlier payment refundable if the appellant had to deposit the amount in cash. As the service provider had already deposited the amount with interest, the tribunal allowed the appeal, setting aside the demand for the disputed amount and the penalty imposed under Section 78.

In conclusion, the appellate tribunal ruled in favor of the appellant, considering the transitional provisions under the CGST Act and the revenue-neutral nature of the situation, setting aside the demand for cenvat credit and the penalty imposed.

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