2018 (7) TMI 1122 - AT - Service Tax

Demand of Interest and penalty - irregular availment of CENVAT Credit - it was alleged that assessee had availed and utilized inadmissible credit on services after apportionment of service tax credits by their unit at Hosur plant - challans issued under Rule 4(A)2 of Service Tax Rules, 1994 - case of Revenue is that the services on which service tax was paid were not common services applicable to the Mysore Unit of the assessee - scope of SCN - Held that - The Commissioner has not traveled beyond the show-cause notice as alleged by the Revenue - the Commissioner has examined the eligibility of the respondent to avail the credit and found that they were eligible to avail the credit and therefore he set aside the demand of interest and imposition of penalty. In view of the decision of the Karnataka High Court in the case of Ecof Industries Pvt. Ltd. 2011 (2) TMI 1130 - KARNATAKA HIGH COURT , the demand of interest and imposition of penalty will not arise if the credit availed by the assessee is in order. Appeal dismissed - decided against Revenue.

Issues:
1. Eligibility of credit availed by the assessee under CENVAT Credit Rules, 2004.
2. Jurisdiction of the Commissioner to drop proceedings initiated through a show-cause notice.
3. Applicability of interest and penalty under Rule 14 and 15 of CCR, 2004.

Eligibility of Credit:
The appeal was filed by the Revenue against the Commissioner's order dropping proceedings initiated via a show-cause notice. The case involved the inadmissible availing and utilization of service tax credit by the assessee, a two-wheeler motor vehicle manufacturer. The Range Superintendent observed that the credit availed based on certain challans was not applicable to the Mysore Unit of the assessee. The Department issued a notice demanding interest on the inadmissible credit availed. The Commissioner, however, dropped the proceedings, leading to the appeal. The Revenue argued that the credit was ineligible as it was not used for manufacturing or providing services at the Mysore plant, emphasizing the need for recovery under the Central Excise Act.

Jurisdiction of the Commissioner:
The Revenue contended that the Commissioner exceeded the show-cause notice's scope by dropping the proceedings, as the notice only demanded interest and penalty. They emphasized that the assessee had both availed and utilized the ineligible credit, making the demand for interest valid. The Commissioner's decision was challenged on the grounds that the credit availed was incorrect as per Rule 2(l) of CCR 2004. The Respondent defended the order, stating that the Commissioner had not adjudicated the credit's eligibility directly but focused on the demand for interest and penalty under Rule 14 and 15, which require irregular credit availing for invocation.

Applicability of Interest and Penalty:
The Respondent argued that the Commissioner correctly assessed the eligibility of credit, leading to the setting aside of the interest and penalty demands. They highlighted the absence of a one-to-one correlation between credit distribution and service usage, citing legal precedents. The Respondent also pointed out that the show-cause notice did not dispute the credit itself, making the demand for interest and penalty premature. The Tribunal upheld the Commissioner's decision, stating that the eligibility of credit determined the applicability of interest and penalty, citing relevant case laws and the Karnataka High Court's decision in Ecof Industries Pvt. Ltd. case.

In conclusion, the Tribunal upheld the Commissioner's order, finding no infirmity in dropping the proceedings initiated through the show-cause notice, as the eligibility of credit was the determining factor for interest and penalty applicability. The legal precedents and the Karnataka High Court's decision supported the dismissal of the Revenue's appeal.

← Previous Next →