2016 (7) TMI 1126 - AT - Service Tax

Levy of penalty u/s 76 of the Finance Act, 1994 - Service Tax on Renting of Immoveable Property Service was paid through Cenvat Credit account available on that day along with interest vide GAR 7 Challan - the adjudicating authority as well as the appellate authority held that the payment of service tax made from cenvat credit is not proper for the reason that the service tax dues are pertaining to the period 2007-08 to 2009-10 whereas the appellant have paid service tax from cenvat credit which was available on 31.1.2011. It was contended that as per Rule 3(4) of Cenvat Credit Rules, 2004. The Cenvat Credit available on the last day of the period for which service tax is due can only be utilized. Held that - From the circular dated 28-3-2012, it is very clear that if payment of arrears is made under Section 11A of the Act, then Rule 3(4) of Cenvat Credit Rules, 2014 shall not apply. In the present case the appellant has paid the amount under Section 73 (1)/73 (3) which being pari materia to Section 11A, the Board Circular clearly applies and accordingly there is no restriction to utilize the Cenvat Credit even at later date at the time of payment of service tax. In the present case the service tax along with interest was paid in the months of February 2011 i.e. before 28.5.2012. Accordingly, the condition specified for non-imposition of penalty under Section 76, 77 & 78 has been complied with by the appellant. Therefore no penalty is imposable in the present case. - Demand and penalty set aside - Decided in favor of assessee.

Issues Involved:
1. Legitimacy of paying service tax arrears from Cenvat Credit.
2. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
3. Compliance with Rule 3(4) of Cenvat Credit Rules, 2004.
4. Retrospective application of service tax on Renting of Immovable Property.

Detailed Analysis:

Legitimacy of Paying Service Tax Arrears from Cenvat Credit:
The appellant paid service tax for the period 2007-08 to 2009-10 using Cenvat Credit available in February 2011. The department contested this, arguing that Cenvat Credit should only be utilized if it was available on the last day of the period for which service tax was due. The appellant argued that the service tax liability arose only after the retrospective amendment in 2012, making it an arrear payable under Section 73 of the Finance Act, 1994. The tribunal agreed with the appellant, citing a Board Circular dated 28.3.2012, which clarified that arrears of duty could be paid using Cenvat Credit accrued after the period to which the arrears pertained.

Applicability of Penalties under Sections 76, 77, and 78:
The appellant contended that no penalties should be imposed as per the amended Section 80(2) of the Finance Act, 2012, which provides for waiver of penalties if service tax on Renting of Immovable Property is paid within six months from the date the Finance Bill, 2012, received the President's assent. The tribunal found that the appellant had paid the service tax and interest before the due date, thus meeting the conditions for waiver of penalties under Sections 76, 77, and 78.

Compliance with Rule 3(4) of Cenvat Credit Rules, 2004:
The department argued that Rule 3(4) restricts the use of Cenvat Credit to the extent available on the last day of the period for which service tax is due. The tribunal, however, noted that this rule applies to regular periodical payments and not to arrears under Section 73. The tribunal cited the Board Circular, which stated that the restriction on the utilization of Cenvat Credit does not apply to demands confirmed under Section 11A of the Central Excise Act, 1944, and by extension, to Section 73 of the Finance Act, 1994.

Retrospective Application of Service Tax on Renting of Immovable Property:
The appellant argued that the taxability of Renting of Immovable Property was under dispute until a retrospective amendment in 2012 validated the levy from June 1, 2007. The tribunal acknowledged this and noted that the service tax liability became an arrear only after the amendment, thus supporting the appellant's use of Cenvat Credit available at the time of payment in 2011.

Conclusion:
The tribunal set aside the impugned order, ruling that the appellant was entitled to use Cenvat Credit for paying service tax arrears and that penalties under Sections 76, 77, and 78 were not applicable due to compliance with Section 80(2) of the Finance Act, 2012. The appeal was allowed, and the penalties were waived.

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