2017 (4) TMI 754 - AT - Service Tax

CENVAT credit - case of Revenue is that credit pertain to exercise equipment , which being classifiable under chapter 95 of the Schedule to the CETA, 1985, is not capital goods within the meaning of rule 2 (a) of CCR, 2004 and hence not allowable - Held that - exercise equipment is, indeed, utilised as input for rendering taxable service and that the duty paid on this equipment is permissible as CENVAT credit, irrespective of whether it was initially claimed as capital goods. Accordingly, the credit has been taken in accordance with the law and cannot, therefore, be denied as sought by Revenue. There is thus no justification for disallowing this credit and for restoration of penalty as proposed in the grounds of appeal - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Challenge to order-in-appeal upholding demand with interest but setting aside penalties
2. Dispute over CENVAT credit on exercise equipment for gymnasium services
3. Allegation of intent to evade tax and imposition of penalties
4. Interpretation of provisions under Finance Act, 1994 regarding tax liability

Analysis:

1. The Revenue challenged an order-in-appeal upholding a demand of ?22,19,024 with interest but setting aside penalties under section 78 of Finance Act, 1994 and rule 15(3) of CENVAT Credit Rules, 2004. The demand was related to 'health and fitness service' provided between January 2008 and July 2008. The first appellate authority allowed CENVAT credit of ?26,48,040 on exercise equipment, classifying them as 'inputs' for taxable service provision, contrary to Revenue's argument that they were not capital goods. The Tribunal heard arguments from both sides extensively.

2. The dispute centered on the classification of exercise equipment for a gymnasium service. The Revenue contended that the equipment did not qualify as capital goods under CENVAT Credit Rules, 2004, while the assessee argued that they were essential inputs for the service. The assessee had availed CENVAT credit on the equipment in previous years. The jurisdictional tax authority alleged suppression of facts to evade tax, leading to penalties under section 78 of Finance Act, 1994. However, the Tribunal found no intent to evade tax due to the prompt rectification of tax liabilities.

3. The issue of intent to evade tax and the imposition of penalties under section 78 of Finance Act, 1994 was crucial. The Tribunal noted that the short period of non-payment of tax did not indicate intent to evade, as invoices were issued and recorded in accounts. The assessee rectified the tax deficiency promptly, leading the Tribunal to conclude that penalties were not warranted. The Tribunal also held that no show cause notice was necessary for tax recovery under section 73(3) of Finance Act, 1994.

4. Regarding the CENVAT credit dispute, the Tribunal referred to precedents where credit initially taken on capital goods but later classified as inputs was allowed. Relying on these precedents, the Tribunal held that exercise equipment qualified as inputs for taxable services, allowing the CENVAT credit claimed by the assessee. The Tribunal dismissed the Revenue's appeal and disposed of the cross objection, upholding the order-in-appeal and confirming the eligibility of CENVAT credit on exercise equipment for gymnasium services.