2023 (6) TMI 146 - AT - Service Tax

Reversal of CENVAT Credit - common input services for providing both taxable and non-taxable service - Rule 6(3A) of the Cenvat Credit Rules, as amended by Notification No. 13/2016-CE (NT) dated 01.03.2016 - time limitation - suppression of facts - penalty - HELD THAT - From perusal of the rule, it is evident that the rule is applicable only in respect of the common credit taken for provision of both taxable and exempted services. The approach adopted by the Commissioner by taking total credit for three years i.e. April 2015 to 30.06.2017 for the reversal cannot be justified accordingly. Even otherwise, the appellant was providing upto 15.01.2016 taxable services only on which they were paying the required service tax. Accordingly taking the value of the total Cenvat credit for the period April 2015 to 30.06.2017 cannot be justified. The appellant was required to reverse under Rule 6(3A) credit of Rs.1,96,730/- which they paid along with interest on 04.01.2020. It is now settled law that procedural violation while making the above reversal should not come in way allowing the benefit under Rule 6(3A). Commissioner also does not do so. Commissioner has imposed penalty in terms of Rule 15(2) of the Cenvat Credit Rules, 2004 read with the provisions of Section 11AC of the Central Excise Act, 1944. Commissioner has in the impugned order concluded that appellant has willfully suppressed the facts from the revenue to avoid the reversal of the common credit taken by them for providing the taxable and exempted services, as required in terms of Rule 6 of the CENVAT Credit Rules, 2004. This finding of fact has not been seriously challenged/ disputed by the appellant. However, taking note of the fact that actual amount of credit that was required to be reversed and not reversed is only Rs.1,96,730/-, the penalty imposed upon the appellant under Section 78 of the Finance Act reduced to Rs.1,96,730/-. The option given by the Commissioner for payment of 25% of the penalty in case the amount determined is paid along with interest and reduced penalty within 30 days of communication of this order will be available to the appellant. Appeal allowed in part.

Issues Involved:
1. Disallowance and recovery of Cenvat Credit.
2. Calculation of appropriate interest on the demanded amount.
3. Imposition and reduction of penalty.
4. Compliance with Rule 6 of the Cenvat Credit Rules, 2004.
5. Determination of the proportionate credit to be reversed.
6. Allegation of willful suppression of facts.
7. Applicability of penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Disallowance and Recovery of Cenvat Credit:
The Commissioner disallowed and ordered the recovery of Cenvat Credit amounting to Rs. 18,55,671/- from the appellant under Rule 14 of the Cenvat Credit Rules, 2004, read with Section 174 of the CGST Act, 2017. The appellant was engaged in providing construction services and was availing Cenvat credit for common input services used for both taxable and exempted services. The Commissioner determined that the appellant was not eligible for Cenvat credit for units sold after the issuance of the completion certificate and unsold units.

2. Calculation of Appropriate Interest:
The Commissioner ordered the appellant to pay interest on the disallowed Cenvat Credit amount under Rule 14 of the Cenvat Credit Rules, 2004, read with Section 11AA of the Central Excise Act, 1994, and Section 174 of the CGST Act, 2017. The appellant contested the amount calculated by the Commissioner, arguing that the actual reversal required was Rs. 1,96,730/-, which they had already paid along with interest.

3. Imposition and Reduction of Penalty:
A penalty of Rs. 18,55,671/- was imposed on the appellant under Rule 15(2) of the Cenvat Credit Rules, 2004, read with Section 78 of the Finance Act, 1994, and Section 174 of the CGST Act, 2017. The penalty was subject to reduction to Rs. 4,63,918/- if paid within 30 days. The appellant argued against the imposition of the penalty, citing various legal precedents.

4. Compliance with Rule 6 of the Cenvat Credit Rules, 2004:
The Commissioner found that the appellant did not follow the procedure prescribed under Rule 6 of the Cenvat Credit Rules, 2004, which led to the suppression of facts. The appellant was required to reverse the Cenvat credit for common input services used for both taxable and non-taxable services.

5. Determination of the Proportionate Credit to be Reversed:
The Commissioner calculated the proportionate credit to be reversed based on the total value of exempted services and the total credit taken. The appellant argued that the Commissioner wrongly computed the reversal amount and provided a detailed calculation showing the correct reversal amount as Rs. 1,96,730/-, which they had already paid.

6. Allegation of Willful Suppression of Facts:
The Commissioner concluded that the appellant willfully suppressed facts to avoid the reversal of common credit. This finding was based on the appellant's failure to follow the prescribed procedure, which was only discovered during an audit. The appellant did not seriously challenge this finding.

7. Applicability of Penalty under Section 78 of the Finance Act, 1994:
The Commissioner imposed a penalty under Section 78 of the Finance Act, 1994, citing willful suppression of facts. The appellant contested the penalty, citing various judicial decisions. However, the Tribunal upheld the penalty but reduced it to Rs. 1,96,730/-, considering the actual amount of credit that was required to be reversed.

Conclusion:
The appeal was disposed of by modifying the impugned order. The Tribunal reduced the penalty to Rs. 1,96,730/- and allowed the appellant the option to pay 25% of the penalty within 30 days. The Tribunal found that the appellant had paid the required reversal amount along with interest, and procedural violations should not hinder the benefit under Rule 6(3A). The Tribunal upheld the Commissioner's finding of willful suppression but reduced the penalty amount accordingly.

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