2015 (2) TMI 239 - AT - Service Tax

Demand of duty on vocational coaching service and on excess utilization of input service credit beyond the limit of 20-% of service tax payable on output service - Held that - Omission by the government to exempt vocational coaching service for the period 1.7.2004 to 9.9.2004 could have lead to confusion in the mind of tax payers. When the notifications are frequently issued sometimes exempting services, then withdrawing exemption and then again issuing exemption, the assessees are not able to follow the notifications due to confusion. We find that no mens-rea or deliberate act of avoidance of payment of service tax has been established by the Revenue. As far as second issue of availability of excess cenvat credit is concerned, We find that the appellant voluntarily paid tax alongwith interest when being pointed out by the authorities. Here again, mens-rea does not get established. We also note that the condition of utilization of service tax to the extent of 20% did not prevent the assessee from having cenvat credit in their account; it only debarred them from utilizing the same to an extent exceeding 20%. In other words, as held in the various decisions, remaining cenvat credit would not have lapsed, it would have remained as credit in the account. Therefore once duty has been paid by the appellants, imposition of penalties is harsh and not warranted. - Reliance is placed on the judgement in the case of the case of CCE, Bangalore vs. Geneva Fine Punch Enclosures Ltd. (2011 (1) TMI 746 - KARNATAKA HIGH COURT) and in the case of CCE & SR, Bangalore vs. Adecco Flexione Workforce Solutions Ltd. (2011 (9) TMI 114 - KARNATAKA HIGH COURT). - Impugned order set aside - Decided in favour of assessee.

Summary

Issues:
1. Demand of duty on vocational coaching service and excess utilization of input service credit.
2. Imposition of penalties under sections 76, 78, and Rule 15(4) of Cenvat Credit Rules, 2004.

Analysis:
1. The appellant appealed against the Order-in-Appeal that demanded duty on vocational coaching service and excess utilization of input service credit beyond the prescribed limit. The appellant was exempt from service tax on vocational coaching service before and after specific dates but failed to pay during an interim period due to the government's omission to extend the exemption. The demand for service tax was raised as the appellant did not follow the rule limiting cenvat credit utilization to 20% of the service tax payable on taxable output service.

2. The Hon'ble Karnataka High Court's judgments were cited to argue that penalties should not be imposed if service tax and interest were paid before the show cause notice issuance. The tribunal noted the confusion caused by frequent changes in exemption notifications, leading to a lack of mens rea or deliberate avoidance of service tax payment by the appellant. Regarding the excess cenvat credit issue, the appellant voluntarily paid the tax with interest upon authorities' notification, indicating no mens rea. The tribunal emphasized that the condition of utilizing only 20% of cenvat credit did not result in the credit lapsing; it remained in the account. Citing previous decisions, the tribunal found the penalties harsh and unwarranted once the duty was paid, leading to the appeal being allowed and the impugned order set aside.