2012 (10) TMI 765 - AT - Service Tax

Denial of CENVAT Credit of duty paid on capital goods - assessee contested against the denial as had filed the ST3 returns for the relevant period in November 2007 - no separate SCN issued - Held that - In this case, after issue of Show Cause Notice, returns have been filed, credit has been shown and debits have been made. However, before the returns were filed, Show Cause Notice has already been issued and in reply to the Show Cause Notice, the respondent had already made the claim for CENVAT Credit of duty paid on capital goods which was required to be considered by the adjudicating authority. Thus just because the returns were filed subsequently, the requirement under the law for the adjudicating authority to consider availability of CENVAT Credit and allow the benefit of admissible CENVAT Credit while confirming the duty demand does not undergo a change Issue of another Show Cause Notice to deny the CENVAT Credit would only open a line for another round of litigation without any corresponding benefit to either side. The defence regarding the admissibility of CENVAT Credit canvassed by the assessee was considered by adjudicating authority and while doing so, the admissibility/in-admissibility of CENVAT Credit to the respondent was considered. Therefore, it cannot be said that the principles of natural justice for denying the CENVAT Credit available to the respondent did not become available to them in the absence of Show Cause Notice after filing of ST-3 returns with regard to the CENVAT Credit. If a Show Cause Notice was to be issued and separate proceedings were to be initiated, the original adjudicating authority would not have allowed the appropriation and would not have allowed the benefit of credit itself since it would have been the subject matter of another litigation and thereby the respondent would have been required to make payment in cash and later on file refund claim resulting in further litigation regarding unjust enrichment and other aspects. Thus the arguments advanced that a separate Show Cause Notice should have been issued for dis-allowing the CENVAT Credit after the returns were filed, have no merit. Once the claim that the CENVAT Credit was available and assessee s omission was only in following the procedure, his claim for the benefit of provisions relating to imposition of penalty under Section 80 of Finance Act, 1994 has to be considered favourably. Therefore, to the extent of availability of CENVAT Credit on capital goods to the respondent, penalty under Section 78 has to be waived - The benefit of payment of 25% of duty liability towards penalty subject to the condition that the entire amount of Service Tax liability, interest and penalty to the extent of 25% are discharged within one month from the date of communication of the order of the Tribunal, is extended. Thus assessee has to pay total service tax by debiting CENVAT Credit on capital goods received subsequent to 10.09.2004 and by paying balance in cash with interest and 25% of Service Tax paid in cash towards penalty within 30 days of receipt of this order and in case of failure, pay penalty equal to the Service Tax payable in cash.

Summary

Issues:
1. Eligibility of CENVAT Credit on duty paid on capital goods prior to 10.09.2004.
2. Consideration of CENVAT Credit in relation to Service Tax liability.
3. Claim for penalty waiver under Section 78 of Finance Act, 1994.

Eligibility of CENVAT Credit on duty paid on capital goods prior to 10.09.2004:
The case involved a dispute regarding the eligibility of CENVAT Credit on duty paid on capital goods prior to 10.09.2004. The original adjudicating authority allowed the credit for the period subsequent to 10.09.2004 but disallowed it for the period before that date. However, the appellate authority granted the benefit of CENVAT Credit for the earlier period as well. The Revenue contended that Rule 11 of CENVAT Credit Rules, 2002 did not permit such credit before 10.09.2004. The Tribunal agreed with the Revenue's argument, stating that CENVAT Credit on duty paid on capital goods was not available during the relevant period.

Consideration of CENVAT Credit in relation to Service Tax liability:
The respondent argued that the Department could not reject the CENVAT Credit claim since they had filed ST3 returns for the relevant period, showing the credit and utilization for payment of Service Tax. The respondent maintained that the original adjudicating authority had acknowledged the CENVAT Credit by appropriating the amount debited from the credit account. The Tribunal found merit in the respondent's submissions, emphasizing that the adjudicating authority had considered the availability of CENVAT Credit while confirming the duty demand. It was concluded that initiating separate proceedings for denial of the credit after the returns were filed would only lead to unnecessary litigation without benefiting either party.

Claim for penalty waiver under Section 78 of Finance Act, 1994:
Regarding the penalty under Section 78 of the Finance Act, 1994, the Tribunal noted that no appeal had been filed against the imposition of the penalty. However, the respondent's cross objection was treated as an appeal. The Tribunal agreed with the respondent's claim that there was no intention to evade duty as they believed they were eligible for the CENVAT Credit on duty paid on capital goods. Consequently, the penalty under Section 78 was waived to the extent the CENVAT Credit was available to the respondent. The Tribunal also allowed the benefit of payment of 25% of duty liability towards penalty, subject to specific conditions.

In conclusion, the Appellate Tribunal ruled in favor of the Revenue on the issue of CENVAT Credit eligibility, allowing the appeal and requiring the respondent to pay the consequential amount along with interest. Penalties under Section 78 were set aside to the extent related to admissible CENVAT Credit. The Tribunal provided a detailed analysis and decision on each issue, ensuring a fair and comprehensive judgment based on the legal provisions and arguments presented by both parties.