2018 (9) TMI 986 - AT - Service Tax

CENVAT Credit - Storage and Warehousing Service - input services - port services - denial of credit for the reason that the appellants were receiving reimbursement of the full amount from the customer - Extended period of limitation - Scope of SCN - Held that - The present Show Cause Notice is issued on the ground that the appellants have received reimbursement of the said expenses along with tax paid by them and therefore, are not eligible for credit. It is correct that the issue of reimbursement was not considered or raised in the earlier Show Cause Notice dated 05.09.2006 - the invocation of extended period is legal and proper - demand with interest upheld. Penalty - Held that - The appellant having entertained a bona fide belief that they are eligible for credit since the earlier SCN mentioned specifically about the eligibility of credit on Storage and Warehousing Services rendered to M/s. DCW Ltd., the equal penalty is unjustified - penalty set aside. Appeal allowed in part.

Summary

Issues:
1. Eligibility of service tax credit for Storage and Warehousing Services.
2. Validity of penalties imposed under Rule 15 of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.
3. Invocation of the extended period for demand of wrongly availed credit.
4. Bona fide belief of the appellant regarding eligibility for credit.

Analysis:

Issue 1 - Eligibility of service tax credit for Storage and Warehousing Services:
The appellants, registered under the category of "Storage and Warehousing Service," were found to have taken and utilized service tax credit on services rendered to a customer. The Department contended that the appellants were not eligible for the credit as they were receiving reimbursement from the customer. The Tribunal noted that the Department had previously acknowledged the appellant's eligibility for credit in a Show Cause Notice. The Tribunal found that the invocation of the extended period for demand was legal due to the issue of reimbursement not being raised earlier.

Issue 2 - Validity of penalties imposed:
The appellant contested only the penalty imposed under Rule 15 of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994. The appellant argued that since the Department was aware of the services provided by the appellant, the penalty for suppression of facts could not be sustained. The Tribunal agreed, stating that the penalty was unjustified due to the appellant's bona fide belief in their eligibility for credit based on the previous Show Cause Notice. The penalty was set aside while the demand and interest remained upheld.

Issue 3 - Invocation of the extended period:
The Department argued that the extended period for demand was justified as the issue of reimbursement was not considered in the earlier Show Cause Notice. The Tribunal agreed with this argument, stating that the invocation of the extended period was legal and proper based on the new information regarding reimbursement received by the appellants.

Issue 4 - Bona fide belief of the appellant:
The appellant maintained that they were under a genuine belief that they were eligible for the credit, citing a previous decision to support their argument. The Tribunal acknowledged the appellant's belief and found that the penalty imposed was unjustified due to the appellant's genuine belief in their eligibility for the credit. The penalty was set aside, providing relief to the appellant.

In conclusion, the Tribunal partly allowed the appeal by setting aside the penalty while upholding the demand and interest, considering the appellant's bona fide belief in their eligibility for the credit based on the previous communication from the Department.