2016 (12) TMI 101 - AT - Service Tax

Levy of interest and penalty - taking credit of tax paid on input services on billed basis instead of payment basis leading to credit having been wrongly taken on tax amount unpaid to the extent of ₹ 2,30,06,772/- as on 31st March 2008 and which was reversed upon the discrepancy being pointed out - Held that - while holding that interest liability will arise on erroneously taken credit till 17th March 2012 even if such credit is not utilised and that interest liability will arise on insufficient credit available as on date of making payment of taxes for each month arising from failure to reverse the credit of duty paid on capital goods, we remand the matter back to the original authority to ascertain availability of credit on due dates for each month after reversal after disallowing the credit not reversed on capital goods transferred. The adjudicating authority is directed to arrive at a finding of the interest liability by a strict application of rule 14 in relation to credit erroneously taken and section 75 of Finance Act, 1994 in the event of deficit of credit on the date on which tax liability was to be discharged - appeal disposed off by way of remand.

Summary

Issues:
1. Liability of tax, interest, and penalty on the assessee as per the impugned order.
2. Alleged contravention of CENVAT Credit Rules, 2004 by the assessee between 2004-05 and 2007-08.
3. Failure of the assessee to make debit entries in the CENVAT credit account towards tax liability on the due date.
4. Dispute regarding interest and penalties imposed on the assessee.
5. Interpretation of Rule 14 of CENVAT Credit Rules, 2004 by the appellate tribunal.

Analysis:

1. The impugned order held the assessee liable for tax amounts totaling to &8377; 2,30,06,772/-, &8377; 1,00,54,774/-, and &8377; 53,85,476/-, along with interest and penalties. The appellant contested the imposition of interest and penalties, claiming errors were clerical without malicious intent. They cited legal precedents to support their case.

2. The allegation against the assessee was for contravening CENVAT Credit Rules by wrongly taking credit on input services, short-paying tax amounts, and failing to reverse credits when transferring capital goods. The tribunal noted the appellant's actions to rectify these discrepancies but emphasized the need for strict application of Rule 14 to determine interest liability.

3. The failure of the assessee to make timely debit entries towards tax liability raised interest claims of &8377; 1,73,02,813/-. The tribunal directed the original authority to verify the availability of credit on due dates to ascertain the interest liability accurately.

4. The appellant challenged the interest and penalties imposed, arguing that the delay in tax payment was not intentional and that the credits wrongly taken were rectified promptly. The tribunal remanded the matter to the original authority for a detailed assessment of interest liability based on strict application of the rules.

5. The appellate tribunal extensively analyzed the interpretation of Rule 14 of CENVAT Credit Rules, 2004, citing legal judgments to clarify the mandatory nature of interest recovery on erroneously taken credit. The tribunal emphasized the need for a thorough verification of credit availability and utilization to determine interest liability accurately.

In conclusion, the appellate tribunal set aside the impugned order and directed the original authority to reevaluate the interest liability based on a strict application of Rule 14 and Section 75 of the Finance Act, 1994. The decision highlighted the importance of verifying credit availability on due dates and ensuring compliance with CENVAT Credit Rules for accurate assessment of interest and penalties.