2013 (12) TMI 321 - AT - Service Tax

Availment of CENVAT Credit - Credit on input service - Contravention of Rules 3, 4 and 9 of Cenvat Credit Rules, 2004 - Availment of Credit not due - entire Service Tax/Cess amount paid to service provider - Interest on tax not paid - Held that - Appellant availed the Cenvat credit which was not due to them at the material time. The demand of interest is for the period from the date of irregular availment of Cenvat credit till the date of payment of Service Tax amount to the service provider in terms of Rule 4(7) of Cenvat Credit Rules. There is no dispute that the Appellant had retained the amount which was not due to them and for which the Appellant became entitled only at a subsequent date. Therefore, they are liable to pay the interest in terms of the provisions of Rule 14 of the Cenvat Credit Rules. As regards the contention of the Appellant that Tax has not been determined in accordance with the provisions of Section 11A(2), it is pertinent that the recovery of interest is for irregular availment of Cenvat credit which was not available to them, since they had not paid the Service Tax amount to the service provider. The Service Tax amount to service provider, was paid at a later date, the payment of which has never been contested or challenged at any stage - Appellant utilized the credit only after paying the Service Tax amount to the service provider, the penalty imposed in this case set aside - Following decision of Union of India v. Ind-Swift Laboratories Ltd. 2011 (2) TMI 6 - Supreme Court - Decided partly in favour of assessee.

Summary

Issues involved:
- Recovery of interest on irregular availment of Cenvat credit without paying Service Tax to the service provider
- Interpretation of Rule 4(7) of the Cenvat Credit Rules, 2004
- Applicability of interest under Rule 14 of the Cenvat Credit Rules
- Determination of Service Tax under Section 11A(2)
- Validity of penalty imposition

Analysis:

The Appellant filed an Appeal against the Order-in-Appeal confirming the recovery of interest of Rs. 1,19,083.00 due to the irregular availment of Cenvat credit without paying Service Tax to the service provider. The Appellant, engaged in manufacturing, wrongly took credit on input services without paying Service Tax, leading to proceedings against them for contravention of Cenvat Credit Rules. The Department sought the reversal of wrongly taken credit along with interest. The Appellant paid the Service Tax amount to the service provider but not the interest, resulting in a show cause notice for interest recovery and penalty proposal.

The Appellant argued that they became eligible for credit after paying Service Tax, hence interest should not apply as no duty was determined under Section 11A(2). The Department contended that the Appellant availed credit before paying Service Tax, justifying interest under Rule 4(7) of the Cenvat Credit Rules. The Tribunal noted the Appellant's irregular availment of credit and held them liable for interest from the date of such availment until paying the Service Tax amount to the service provider, as per Rule 14 of the Cenvat Credit Rules. The Tribunal referenced the Supreme Court's decision in Union of India v. Ind-Swift Laboratories Ltd. to support automatic interest imposition on irregular credit availment.

The Tribunal dismissed the Appeal regarding interest recovery, citing the Appellant's retention of undue amount until a later date when Service Tax was paid. However, recognizing the Appellant's credit utilization post Service Tax payment, the Tribunal set aside the penalty imposed. The judgment emphasized that interest on irregular credit accrues from the date of availment, aligning with the Supreme Court's precedent. Ultimately, the Appeal was disposed of with the decision to uphold interest recovery while rescinding the penalty imposition.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, relevant rules and provisions, and the Tribunal's rationale in reaching its decision on the recovery of interest and penalty imposition in the case.