2025 (1) TMI 476 - AT - Central Excise

Disallowance/recovery of CENVAT Credit along with interest and imposed equal amount of tax as penalty - service tax paid under the reverse charge mechanism (RCM) for Goods Transportation Agency (GTA) services - Interest and penalty - HELD THAT - The appellant has paid service tax on GTA service under RCM basis. Under RCM basis, the service tax liability is paid within 5th of the next month and the CENVAT Credit of the same is availed by the Appellant while filing the ST 3 return of the half year wherein the said amount paid by the Appellant is also shown as CENVAT Credit in the Cenvat table of the return. The same is also disclosed in ER 1 return by the Appellant. Thus, it is observed that the allegation of availment of CENVAT Credit without payment cannot arise as the payment is done within the due date of payment of service tax which is also visible from the table set out in the demand order. There is no dispute with respect to the genuineness of input services availed by them. Thus, the appellant is eligible to avail the credit and the allegation in this regard in the impugned order is not sustainable. Utilization of credit before making payment of the service tax - HELD THAT - It is observed that if the appellant has utilized the credit before making the payment of service tax on GTA service, at the maximum the department could have demanded interest for the few days before which the credit was utilised, before payment. However, it is observed from the submission of the appellant that although they have availed the CENVAT Credit during the relevant period, they have not utilised the credit for the payment of any other liabilities for the said month. Thus, there is no obligation on them to pay any interest. Hon ble Supreme Court in UOI AND ORS. VERSUS IND-SWIFT LABORATORIES LTD. 2011 (2) TMI 6 - SUPREME COURT held that no interest is payable when there is no utilisation of CENVAT Credit. By following the ratio of the decisions, it is held that the appellant is not liable to pay interest as the credit taken by the appellant was not utilized before making the payment of service tax. Levy of penalty - HELD THAT - Since there is no irregularity in availment of the credit, no penalty imposable on the appellant and hence the penalty imposed in the impugned order is set aside. Conclusion - i) The appellant is eligible to avail the CENVAT Credit of service tax of Rs. 1,35,91,278 - paid by them on RCM basis for Goods Transportation Agency Services and hence the demand confirmed in the impugned order along with interest, is set aside. ii) The penalty imposed on the appellant in the impugned order is set aside. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the appellant, M/s Prabhu Sponge Private Ltd., was entitled to avail CENVAT Credit on service tax paid under the reverse charge mechanism (RCM) for Goods Transportation Agency (GTA) services before the actual payment of service tax during the financial years 2007-08 to 2011-12.
• Whether the imposition of interest and penalty on the appellant for availing CENVAT Credit before the payment of service tax was justified under the relevant provisions of the Central Excise Act, 1944, and the CENVAT Credit Rules, 2004.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Avail CENVAT Credit Before Payment of Service Tax

• Relevant Legal Framework and Precedents: The relevant legal provisions include Rule 3(4) and Rule 4(7) of the CENVAT Credit Rules, 2004, which govern the conditions under which CENVAT Credit can be availed. Rule 9(1) specifies the documentation required for claiming credit. The appellant relied on precedents such as the CESTAT decision in National Aluminium Company Ltd. and the Supreme Court judgment in Union of India v. Ind-Swift Laboratories Ltd.
• Court's Interpretation and Reasoning: The tribunal observed that under RCM, the service tax liability is paid by the 5th of the next month, and the credit is availed when filing the ST-3 return. The tribunal found that the appellant disclosed the credit in their returns, and there was no dispute regarding the genuineness of the input services.
• Key Evidence and Findings: The appellant provided invoices and TR-6 challans as evidence of service tax payment. The tribunal noted that the appellant had not utilized the credit for other liabilities before the payment of service tax.
• Application of Law to Facts: The tribunal applied the legal provisions and precedents to determine that the appellant correctly availed the CENVAT Credit based on the invoices received from the service provider.
• Treatment of Competing Arguments: The tribunal considered the department's argument that the appellant availed credit before payment. However, it concluded that since the credit was not utilized before payment, the appellant's actions were within the legal framework.
• Conclusions: The tribunal concluded that the appellant was entitled to avail the CENVAT Credit and that the allegations in the impugned order were not sustainable.

Issue 2: Imposition of Interest and Penalty

• Relevant Legal Framework and Precedents: The imposition of interest and penalty is governed by sections 11AB/11AA and 11AC of the Central Excise Act, 1944, along with Rule 14 and Rule 15 of the CENVAT Credit Rules, 2004. The appellant cited several precedents, including CCE & ST v. Bill Forge (P.) Ltd. and others, to argue against the imposition of interest and penalty.
• Court's Interpretation and Reasoning: The tribunal observed that if the credit is taken but not utilized before making the payment of service tax, no interest is payable. This view was supported by the CESTAT decision in National Aluminium Company Ltd.
• Key Evidence and Findings: The tribunal found that the appellant had not utilized the credit before the payment of service tax, as evidenced by their submissions and returns.
• Application of Law to Facts: The tribunal applied the legal provisions and precedents to determine that no interest was payable since the credit was not utilized before payment.
• Treatment of Competing Arguments: The tribunal considered the department's position on interest and penalty but found no basis for these charges given the factual circumstances.
• Conclusions: The tribunal concluded that no interest or penalty was imposable on the appellant, and the penalty imposed in the impugned order was set aside.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "We observe that if the credit is taken but not utilized before making the payment of service tax, there is no interest payable."
• Core Principles Established: The tribunal established that CENVAT Credit can be availed based on valid documentation even if the payment of service tax occurs subsequently, provided the credit is not utilized before payment. Additionally, no interest or penalty is applicable if the credit is not utilized before the payment of service tax.
• Final Determinations on Each Issue:
  
  • The appellant is eligible to avail the CENVAT Credit of service tax paid on RCM basis for GTA services, and the demand confirmed in the impugned order along with interest is set aside.
  • The penalty imposed on the appellant in the impugned order is set aside.
  • The appeal is disposed of on these terms.