2017 (10) TMI 25 - AT - Service Tax

Liability of interest and penalty - Reversal of CENVAT credit wrongly taken on the basis of Debit notes - Held that - the taking of irregular credit in the cenvat account will be considered as a mere book entry and in absence of proof of its utilization, the interest liability cannot be fastened against the appellant - reliance placed in the case of Commissioner of Central Excise and Service Tax, LTU, Bangalore Vs. Bill Forge Pvt. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT , where it was held that credit of excise duty in the register maintained for this purpose is only a book entry and before utilization of such credit, if the entry is reversed, the same amounts to not taking of cenvat credit. In absence of non-utilization of wrongly availed cenvat credit, interest and penalty cannot be confirmed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Availing Cenvat credit based on debit notes not prescribed under Rule 9 of Cenvat Credit Rules, 2004
- Dispute regarding interest demand and penalty imposition
- Appellant's argument of credit not being utilized and reliance on specific judgments
- Respondent's contention on liability for interest and penalty
- Interpretation of Rule 14 of Cenvat Credit Rules, 2004
- Precedents cited by both parties
- Tribunal's analysis and decision on interest and penalty confirmation

Analysis:
1. The case involved the appellant availing Cenvat credit based on debit notes during the period 2008-09 to 2011-12, which were not prescribed under Rule 9 of the Cenvat Credit Rules, 2004. The Department disputed the legitimacy of such credit availed by the appellant, leading to the initiation of show cause proceedings and subsequent confirmation of interest demand and penalty imposition by the Adjudicating Authority.

2. The appellant's advocate argued that the wrongly availed Cenvat credit was never utilized and remained in the Cenvat register until its reversal. It was contended that since the credit was not utilized for paying Service Tax, its entry in the register should be considered a mere book entry. Citing judgments like the one from the Hon'ble Karnataka High Court, it was emphasized that in the absence of malafides, penalties should not be imposed.

3. On the other hand, the respondent's representative reiterated the findings of the impugned order, asserting that since the credit was recorded in the books of accounts, the appellant was liable to pay interest during the period between availing and reversing the credit, as it served a compensatory purpose.

4. The Tribunal, after hearing both sides and examining the case records, highlighted that the Revenue did not claim the wrongly availed credit was used for paying Service Tax. Therefore, the Tribunal referred to the judgment of the Hon'ble Karnataka High Court, emphasizing that the credit in the register was merely a book entry, and interest liability could not be imposed in the absence of credit utilization.

5. The Tribunal further analyzed Rule 14 of the Cenvat Credit Rules, 2004, emphasizing that interest is compensatory and is levied based on the actual amount withheld and the delay in tax payment. It was clarified that interest could not be claimed from the date of wrong credit availing, but from the date of its wrongful utilization.

6. Referring to a similar case precedent, the Tribunal noted that on identical facts, both interest and penalties were set aside. Consequently, considering the settled legal position that interest and penalties cannot be confirmed in the absence of credit utilization, the Tribunal set aside the impugned order, ruling in favor of the appellant.