2015 (11) TMI 657 - AT - Service Tax

Denial of CENVAT Credit - GTA Service and Manpower Recruitment Agency services - Non maintenance of separate accounts - Held that - Admittedly they were reflecting the entire facts in the returns filed by them to the Revenue. Revenue was aware of the fact that appellant is manufacturing dutiable as also exempted final products and is availing CENVAT credit of service tax paid on the entire services so received by them. Even then no objection was ever raised by them and it was only at the time of audit that the said legal issue was raised. As such I am of the view that there is no malafide on the part of the assessee with an intent to evade payment of duty. The appellants are manufacturing dutiable goods to the extent of 95% and only a very small percentage is of exempted final products which is clear from the chart of productions for various years placed on record by the appellant. During the year 2006-07 percentage of production of exempted goods was to the tune of 0.10% and during 2007-08 it was 0.04%. It is only in the year 2009 that the percentage increased to 1.22%. Inasmuch the major part of the appellant s final product was dutiable which was being cleared on payment of duty the availment of CENVAT credit in respect of various services to the extent of 100% cannot be held to be reflecting on any malafide on the part of the assessee so as to invoke the longer period of limitation. As such I am of the view that the demand falling within the limitation period would only survive. The lower authorities would re-quantify the said demand along with interest. - Imposition of penalty upon them is not called for. Accordingly the same is set aside - Decided in favour of assessee.

Issues:
1. Utilization of CENVAT credit for both dutiable and exempted goods
2. Reversal of CENVAT credit for GTA services
3. Utilization of Manpower Recruitment Agency services
4. Demand on the point of limitation
5. Applicability of penalty

Analysis:
1. The appellant availed CENVAT credit for service tax paid on GTA and Manpower Recruitment Agency services, used for both dutiable and exempted goods. The Revenue issued a show-cause notice for not maintaining separate records. The lower authorities confirmed a demand against the appellant, relying on a Bombay High Court decision. However, the appellate tribunal noted that the appellant reversed the proportionate CENVAT credit for GTA services used in manufacturing dutiable goods. The tribunal referenced judgments from the High Courts of Karnataka and Madras, stating that such reversal nullifies the credit availed.

2. Regarding Manpower Recruitment Agency services, the appellant argued that these services were used only for dutiable goods, not exempted ones. However, the tribunal found no evidence supporting this claim. As the appellant did not reverse the CENVAT credit for these services, they were held liable to pay 10% of the value of the exempted final product. The tribunal emphasized the importance of maintaining records to differentiate between usage for dutiable and exempted goods.

3. The tribunal acknowledged the appellant's plea of limitation, noting that the Revenue was aware of the appellant's activities but raised the issue only during an audit. Considering the small percentage of exempted goods produced by the appellant and absence of malafide intent, the tribunal limited the demand to within the statutory period. The tribunal directed the lower authorities to re-quantify the demand along with interest.

4. As the appellant was granted the benefit of limitation due to the absence of malafide intent, the tribunal set aside the penalty imposed. The tribunal concluded the appeal by disposing of it in the appellant's favor, based on the findings related to CENVAT credit utilization, limitation, and penalty applicability.

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