2018 (7) TMI 175 - AT - Service Tax

CENVAT credit - proportionate credit in terms of trading activity - Held that - Discernably, the adjudicating authority has denied the entire quantum of credit availed by the appellant without going into any proportionate eligibility in terms of provisions laid down in CCR - there is case for remanding the matter for de novo consideration to reconsider the net liability of the appellant after calculating the same in terms of Rule 6 (3AA) of the CCR 2014 - appeal allowed by way of remand.

Summary

Issues: Credit availed on common input services, excess credit on GTA services, denial of proportionate credit, imposition of penalties under Section 76 & 78 of the Finance Act, 1994, demand of interest, remand for recalculation of liability, applicability of Rule 6 (3AA) of the CCR 2004, interpretation of case law.

Analysis:
1. The appellants took whole credit on common input services for authorized service station services and sale of cars but mistakenly claimed 75% excess credit on GTA services instead of 25%. Upon realizing the error, they paid a sum and reversed the unutilized credit. The Commissioner confirmed the recovery of service tax credit, expunged ineligible credit, and imposed penalties under Sections 76 & 78 of the Finance Act, 1994. The appellants challenged this decision before the forum.

2.1. During the hearing, the appellant's counsel argued that the denial of proportionate credit by the adjudicating authority was unjustified. He contended that the appellants are entitled to credit proportionate to the output services rendered by them, citing Rule 6 (3AA) of the CCR 2004, which he claimed had retrospective effect as a procedural clarification from 1.4.2016.

2.2. The counsel further argued against the demand of interest and penalties related to the unutilized cenvat credit, referring to a case law precedent. He emphasized that once a penalty is imposed under Section 78, no additional penalty can be levied under Section 76.

2.3. The appellant's advocate requested a remand for recalculating their liability based on Rule 6 (3AA) of the Rules, asserting that upon recalculation, they would be eligible for the credit.

3. On the contrary, the respondent's representative supported the impugned order, stating that there should be no proportionate eligibility of credit for services used solely for trading purposes.

4. After hearing both sides and reviewing the facts, the forum found that the denial of the entire credit without considering proportionate eligibility was improper. They ordered a remand for a fresh assessment of the appellant's liability in line with Rule 6 (3AA) of the CCR 2014.

5. The forum also considered a relevant case law cited by the appellant's advocate, which supported their argument against the demand of interest and penalties on the expunged credit. Consequently, the demand of interest and proportionate penalty on the ineligible credit was set aside, along with the penalty under Section 76 of the Finance Act, 1994.

6. In conclusion, the adjudicating authority was directed to recalculate the tax liability as per Rule 6 (3AA) of the Rules. Any penalty under Section 78 would be imposed proportionate to the revised tax liability determined during the fresh adjudication.