2024 (1) TMI 523 - AT - Service Tax

Eligibility to avail and utilise the input service credit on various services availed - invocation of extended period in terms of proviso to Section 73(1) of the Finance act, 1994 - imposition of penalties under Section 76, 77 and 78 of the Finance Act, 1994. Eligibility of CENVAT Credit on input services availed - HELD THAT - In the case of M/S. RUKMINI INDUSTRIES VERSUS THE COMMISSIONER OF CENTRAL EXCISE, HYDERABAD-I 2014 (7) TMI 921 - ANDHRA PRADESH HIGH COURT , it was held that there is no specific rule rendering manufacturer ineligible for availing MODVAT credit when such manufacturer is involved in suppression of turnover or clearance of goods out of record and benefit of MODVAT credit to the extent of input utilized in manufacture of dutiable finished product cannot be denied under Rule 57B of erstwhile Central Excise Rules, 1944. In DHANANIWALA TEXTILES PVT. LTD. VERSUS COMMR. OF CUS. C. EX., HYDERABAD 2000 (12) TMI 158 - CEGAT, CHENNAI , it was held that the order of denial of MODVAT Credit is not correct in law when duty paid goods were used in the manufacture of dutiable final products. The law under CENVAT Credit Rules, 2004, does not say that the adjustment of Credit is not to be allowed, if the returns are filed belatedly. On such score, disallowance of credit is not legal and proper. Eligible credit has to be allowed for adjustment to compute the assessee s tax liability. However, the amount of credit has to be verified. The assessee has furnished the table showing the details of the credit available. Even as per Audit report, it was informed that they are eligible for CENVAT Credit. However, we are of the opinion that matter of computation on CENVAT Credit eligible needs to be remanded to the original adjudicating authority for the limited purpose of verifying the amount of credit as furnished in the table and allow the adjustment towards liability. As such, the lower adjudicating authority is directed to requantify the duty liability after adjusting the CENVAT Credit amount. Invocation of extended period of limitation - HELD THAT - The non-payment of Service Tax collected along with the link charges from the cable operators had resulted in undue financial accommodation and therefore the suppression indulged has all necessary elements to be considered as having been resorted to with intent to evade payment of Service Tax. In such a situation extended proviso is rightly invokable as held by the CESTAT, Mumbai in the case of M/s. Safe Sure Marine Service Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai 2012 (4) TMI 56 - CESTAT, MUMBAI wherein it was held interalia that the appellant, after having collected the tax from their customers, have never informed the Department of the same and have suppressed facts from the Department and, therefore, the extended period of time has been rightly invoked in the instant case. The above ratio is squarely applicable in this case . Considering the facts and circumstances of this case and relying upon the above decision, there are no hesitation to hold that the extended period of limitation in terms of the proviso to Sub-Section (1) of Section 73 of Chapter V of the Finance Act, 1994 is rightly invokable in this case. Penalties - HELD THAT - Considering the peculiar circumstance of the case as the appellant has paid substantially the Service Tax amount before the issuance of the Show Cause Notice No. 25/2011 dated 18.04.2011, it is sufficient cause to waive the penalties imposed under Section 76 of the Finance Act, 1994 in terms of provisions of Section 80 of the Finance Act, 1994 in respect of both the Show Cause Notices - penalties imposed under Section 77 of the Finance Act, 1994 are not disturbed. The original adjudicating authority is directed to arrive at the Service Tax payable after allowing the adjustment of CENVAT Credit eligible. Thus, the appeal filed by the assessee is partly allowed and partly remanded.

Summary

Issues Involved:

1. Eligibility of CENVAT credit on input services availed.
2. Invocation of extended period under Section 73(1) of the Finance Act, 1994.
3. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Summary:

Issue 1: Eligibility of CENVAT Credit on Input Services Availed

The Assessee commenced business on 13.07.2006 and obtained registration for Cable Operator Service on 31.07.2006 but failed to get an endorsement for Business Auxiliary Service (BAS). The Show Cause Notices (SCNs) demanded Service Tax for the periods from July 2006 to March 2010 and April 2010 to June 2010. The Assessee paid a substantial amount towards Service Tax dues before the issuance of the first SCN. The Tribunal held that the lower authority's dismissal of the claim for adjustment of CENVAT credit was incorrect. CENVAT Credit being a substantive right should be allowed for adjustment to compute the Assessee's tax liability. The matter was remanded to verify the amount of credit and allow the adjustment.

Issue 2: Invocation of Extended Period under Section 73(1) of the Finance Act, 1994

The Tribunal found that the Assessee had not filed returns and not paid Service Tax despite conducting business throughout the notice period. The non-payment of Service Tax collected along with link charges from cable operators resulted in undue financial accommodation, constituting suppression with intent to evade payment of Service Tax. Therefore, the extended period under the proviso to Section 73(1) was rightly invoked. The Tribunal relied on cases such as Lok Priya Travels and M/s. Safe & Sure Marine Service Pvt. Ltd., which supported the invocation of the extended period in similar circumstances.

Issue 3: Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994

The Tribunal held that the Assessee is liable for penalty under Section 78, equivalent to the tax payable after adjusting the eligible CENVAT Credit. For the period from July 2006 to June 2010, the penalty under Section 76 was waived due to the substantial payment of Service Tax before the issuance of the SCN. The penalties under Section 77 were not disturbed. The Tribunal directed the original adjudicating authority to recompute the Service Tax payable after allowing the adjustment of CENVAT Credit.

Conclusion:

The Tribunal partly allowed and partly remanded the appeal filed by the Assessee and dismissed the appeal filed by the Revenue. The order was pronounced in open court on 10.01.2024.