2018 (8) TMI 233 - AT - Central Excise

CENVAT Credit - Whether the CENVAT credit of ₹ 3,03,35,302/- taken in the books of accounts by the appellant prior to making payment of service tax to the provider of the services can be denied to them as per the provisions of Cenvat Credit Rules, 2004? - Held that - Though the credits might have been availed in the books of accounts their actually utilization have only started after the month of October, 2007 and before that the appellant have already made payment of service tax - there was no utilization of Cenvat credit without payment of service tax. - Reliance was placed in the case of India Cement Ltd. vs. CCE 2018 (5) TMI 603 - CESTAT HYDERABAD , where it was held that in the absence of any dispute that appellant has discharged the tax liability as per the provisions of service tax rules and there also being no dispute as to eligibility to avail CENVAT credit of the said service tax payable by them under reverse charge mechanism, availing CENVAT credit before few days in advance is only a procedural lapse - CENVAT Credit rightly allowed. CENVAT Credit - duty paying documents - whether CENVAT credit amounting to ₹ 1,24,80,608/- which has also been rejected on additional ground that same was not taken on the basis of prescribed documents as provided under Rule 9 (1) of Cenvat Credit Rules is available to them or not? - Held that - The document on the strength of which Cenvat credit of ₹ 1,24,80,608/- was taken, are having all the particulars which are relevant for availing the Cenvat credit. The document has all the details such as name, service provider, service recipient, value of service and service tax amount paid - though the document may not be with the name of the prescribed document which are mentioned under Rule 9 (1) of Cenvat Credit Rules, 2004, however, all the particulars which are relevant have mention on it. Even if the document on the strength of which Cenvat credit is taken is not in the prescribed documents under Rule 9 of the Cenvat Credit Rules, 2004, the credit cannot be denied, if it has the necessary details - Since, the document of the appellant has all the relevant particulars as are the requisite under the above-mentioned proviso to Rule 9 (2), the credit cannot be denied to the appellant - credit allowed. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Legality of Cenvat credit taken before payment of service tax.
2. Validity of Cenvat credit availed based on non-prescribed documents.
3. Liability for interest on unutilized Cenvat credit.
4. Imposition of penalty under Rule 15 (2) of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act.

Detailed Analysis:

1. Legality of Cenvat Credit Taken Before Payment of Service Tax:

The appellant had availed Cenvat credit of ?3,03,35,302/- in June 2007 before making the payment of service tax, which was later paid between August and October 2007. The Department contended that this was in contravention of Rule 4 (vii) of the Cenvat Credit Rules, 2004. However, it was found that the credits remained unutilized in the appellant’s books until the payment of service tax was completed. The Tribunal noted that the balance of credits in the appellant’s accounts always exceeded the disputed amount, except for a shortfall of ?6 lakhs in August 2007. Hence, the Tribunal concluded that the premature availment of Cenvat credit did not result in any wrongful utilization, referencing the case of India Cement Ltd. vs. CCE and other precedents which supported that procedural lapses should not lead to denial of substantive benefits.

2. Validity of Cenvat Credit Availed Based on Non-Prescribed Documents:

An amount of ?1,24,80,608/- was disputed on the grounds that the credit was availed based on a letter from M/s All India Transport Agency, Mumbai, which did not conform to the prescribed documents under Rule 9 (1) of the Cenvat Credit Rules. The Tribunal observed that the document contained all necessary details such as name, address, registration number of the service provider, description and value of the service, and service tax paid. Rule 9 (2) allows for credit if the document contains all requisite information, even if not in the prescribed format. The Tribunal cited several judgments, including Vodafine Essar Spacetel Ltd. vs. CCE, which supported the view that substantive benefits should not be denied due to procedural lapses.

3. Liability for Interest on Unutilized Cenvat Credit:

The appellant argued that interest should not be levied on credits that were taken but not utilized. The Tribunal agreed, referencing the Karnataka High Court judgment in CCE & ST, LTU, Bangalore vs. Bill Forge Pvt. Ltd., which held that interest is compensatory and applies only when the credit is utilized. Since the credits remained unutilized until the payment of service tax, the Tribunal concluded that there was no liability for interest.

4. Imposition of Penalty:

The Tribunal found no intention of evading duty by the appellant and noted that the issue was one of interpretation of the Cenvat Credit Rules. Given that the credits were eventually paid and utilized correctly, the Tribunal held that the imposition of penalties under Rule 15 (2) of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act was not justified.

Conclusion:

The Tribunal set aside the order-in-original, allowing the appeal and confirming that the appellant was entitled to the Cenvat credit. The substantive benefits could not be denied on procedural or technical grounds, and there was no wrongful utilization of credits before the payment of service tax. Interest was not applicable, and penalties were not warranted. The Tribunal's decision emphasized the importance of substantive compliance over procedural formalities.