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2019 (7) TMI 590 - AT - Service TaxCENVAT Credit - services provided by them in the State of Jammu and Kashmir - POPOS Rules - the basic premise for reversal of the Cenvat credit is that the provisions of Finance Act, 1994 for levy of service tax are not applicable in the state of Jammu and Kashmir - HELD THAT - It is a matter of record that though the appellant are not required to pay any service tax on the output service provided by them in the state of Jammu and Kashmir, however, under a mistaken belief that the provision of the Finance Act, 1994 are also applicable in the state of Jammu and Kashmir, the appellant paid service tax on the output services provided by them in the state of Jammu and Kashmir - This fact prove the bonafide of the appellant that firstly by the fact that they had been under the wrong impression that service tax liability is applicable in the state of Jammu and Kashmir; secondly that service tax which have been paid on the output service is much more than the input and capital input Cenvat credit availed by them. We do not agree with the finding of the Original Adjudicating Authority that if the credit is taken for an activity which does not constitute service, payment of service tax will not amount to reversal of the credit . demand deleted Validity of SCN - Penalty u/s 78 - HELD THAT - If there is no suppression or collusion or willful misstatement with an intent to evade service tax and the required amount of the service tax is paid before the issue of show cause notice in that case, there is no need of issuing of any SCN - since all the facts and details of the Cenvat credit and output services have been recorded in the books of accounts of the assessee and during the enquiry itself, the assessee has made a payment of ₹ 5 crores as details given above, we feel that there are no valid ground of issue of show cause notice for demanding of service tax amounting to ₹ 87,35,678/- and for imposition of penalty under Section 78 of Finance Act, 1994 - Demand set aside. CENVAT Credit - capital goods lost before put to use - Consumer Premises Equipment (CPE) which were lost in transit or lost at the distributor s premises before same being put for use in providing the output service - interest - Penalty - HELD THAT - During financial year 2010-2011, 2011-2012 and 2013-2014 a substantial amount of Cenvat credit had already been reversed by the appellant for the CPEs which were lost or destroyed before being put for use. However, due to oversight the amount of ₹ 66,66,437/- lost in transit CPEs during the financial years 2012-2013 could not be reversed. It has been admitted by the appellant that they own the liability of reversal of this amount of ₹ 66,66,437/- on account of the lost or destroyed CPE - as per the provisions of the Rule 3 of the Cenvat Credit Rules, the appellant are required to reverse back the Cenvat credit of ₹ 62,66,437/- as per the provisions of Rule 4 of Cenvat Credit Rules, 2004 readwith Section 73 (1) of the Finance Act, 1994. The appellant are also required to pay interest as per the provision of Section 75 on this amount - however, there is no valid ground for imposition of penalty under Section 78 readwith Rule 15 (3) of the Cenvat Credit Rules, 2004 - decided partly in favor of assessee. CENVAT Credit - capital goods lying unutilised and later written off - Rule 3 (5A) of the Cenvat Credit Rules, 2004 - Consumer Premises Equipments (CPEs) which were lying unused at the consumer premises and which have also been written off fully in the financial accounts from 01/07/2012 to 31 March 2014 by the appellant - HELD THAT - It is presumed that the CPEs has been removed from the premises of the appellant and accordingly the provisions of Rule 3 (5A) of Cenvat Credit Rules, 2004 will be applicable. During the course of hearing, the learned Advocate has taken us through a chart of deactivation/activation of the CPEs for various subscribers. It can be seen from the provisions of Rule 3 (5) that the law has provided that in case the inputs or capital goods on which Cenvat credit has been availed are removed as such from the premises of the manufacturer or service provider, the manufacturer or service provider will have to reverse back the Cenvat credits equal to the amount of the credits availed by them. However, under the proviso to Rule 3 (5) it is provided that such payment shall not be required to be made where any input or capital goods are removed outside the premises of the provider of the output service for providing the output service . It can be seen that the provider of the output service namely appellant in this case, has taken the Cenvat credit on the CPEs which are the capital goods for providing output service at the premises of the subscribers and as per the provisions of the above-mentioned proviso to Rule 3 (5) the appellant are entitled for availing the Cenvat credit on the CPEs under the capital goods credit and they can also remove such CPEs for installation at the premises of the subscribers for providing the output service - The provisions of Rule 3 (5A) covers the situation where the goods are cleared after being put for use at the premises of the manufacture or output service provider. Since the goods are not removed after being used from the premises of the manufacturer or output service provider in the given situation in the present case and, therefore, the provisions of Rule 3 (5A) are not applicable in the present case. Extended period of limitation - Section 73 (1) of the Finance Act, 1994 - HELD THAT - As the Department has already been aware about the facts of the matter and therefore we feel that the element of fraud, mis-representation, collusion, mis-statement with an intent to evade service tax are not present in the given circumstances in this case and, therefore, we hold that the show cause notice is also barred by period of limitation. Interest - HELD THAT - The appropriate amount of interest as per the provisions of Section 75 of the Finance Act, 1994 readwith the Cenvat Credit Rules, 2004 confirmed on the issue of CPE. Penalty - HELD THAT - The elements for invocation of provision of Section 78 such as fraud, collusion, willful mis-statement or suppression of facts with an intent to evade payment of service tax have not been found present and therefore imposition of any penalty under Section 78 of the Finance Act, 1994 is set aside. There is also no valid ground for imposition of the penalty under Rule 15 (1) of the Cenvat Credit Rules, 2004 on the appellant and, therefore, penalty imposed on the appellant under Rule 15 (1) of Cenvat Credit Rules, 2004 is also held legally not sustainable. Appeal allowed in part.
Issues Involved:
1. Reversal of Cenvat credit availed on services provided in Jammu and Kashmir. 2. Reversal of Cenvat credit on Consumer Premises Equipment (CPEs) lost in transit or at distributor's premises. 3. Reversal of Cenvat credit on deactivated CPEs written off in financial accounts. Issue-wise Detailed Analysis: 1. Reversal of Cenvat credit availed on services provided in Jammu and Kashmir: The appellant availed Cenvat credit on CPEs installed in Jammu and Kashmir, where the Finance Act, 1994 is not applicable. The Department demanded reversal of this credit, considering the services as exempt under Rule 2(e) of the Cenvat Credit Rules, 2004. The appellant contended that they paid service tax on these services from 2009 to January 2013, utilizing Cenvat credits and cash payments. They argued that this payment amounted to a reversal of the credit taken, supported by several judicial precedents. The Tribunal agreed, holding that service tax paid on otherwise exempt services amounts to reversal of the credit. However, for the period February 2013 to March 2014, when no service tax was paid, the appellant must reverse the credit of ?87,35,678/- along with applicable interest. The Tribunal found no grounds for imposing penalties under Section 78, as there was no fraudulent intent or suppression of facts. 2. Reversal of Cenvat credit on CPEs lost in transit or at distributor's premises: The Department demanded reversal of ?62,66,437/- for CPEs lost before being put to use. The appellant admitted the liability and highlighted that they had regularly reversed credits for lost CPEs in other financial years. They argued that there was no malafide intent, and they had deposited ?5 crores voluntarily before the show cause notice. The Tribunal upheld the demand for reversal of the credit and interest but found no grounds for imposing penalties, citing the absence of willful suppression or fraudulent intent. 3. Reversal of Cenvat credit on deactivated CPEs written off in financial accounts: The Department demanded reversal of ?9,84,62,871/- for deactivated CPEs, invoking Rule 3(5A) of the Cenvat Credit Rules, 2004. The appellant argued that these CPEs were used for providing output services and were not removed from their premises, making Rule 3(5A) inapplicable. The Tribunal agreed, noting that Rule 3(5) allows removal of capital goods for providing output services without reversing the credit. The Tribunal found that Rule 3(5A) and 3(5B) were not applicable, as the CPEs were used and not written off before use. The Tribunal also noted that the Department was aware of similar practices from a previous adjudication, making the extended period of limitation inapplicable. The demand for reversal of credit under Rule 3(5A) was set aside. Conclusion: The Tribunal partially allowed the appeal, requiring the appellant to reverse ?87,35,678/- for the period February 2013 to March 2014 and ?62,66,437/- for lost CPEs, along with applicable interest. The demand for reversal of ?9,84,62,871/- for deactivated CPEs was set aside. The Tribunal found no grounds for imposing penalties under Section 78 or Rule 15(1) of the Cenvat Credit Rules, 2004. The order was pronounced in open court on 11/07/2019.
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