2022 (4) TMI 72 - AT - Service Tax

CENVAT Credit - Common input services were used for rendering taxable service as well as sales activity / trading which is an exempted service - non-maintenance of separate records - compliance with Rule 6(3A) of CENVAT Credit Rules, 2004 or not - HELD THAT - The appellant has not carried forward the CENVAT credit closing balance of ₹ 14,41,435/- in their returns for the period ending March 2011 to the returns for the period from April 2011 to October 2011. The returns establish that the appellant has not carried forward the credit from the previous period. The learned AR has submitted that this must have been an omission and not a conscious decision to reverse the disputed credit. However, it is to be noted that the appellant has not carried forward the credit and has not availed any benefit out of the credit as it has not been carried forward. It therefore has to be viewed that they have reversed the credit in their books of account. The liability to reverse therefore stands extinguished. After perusing the ST-3 returns as well as the details of the calculations given by both sides, the appellant has no further liability to reverse the credit for the disputed period. The matter was adjourned to understand the confusions in the calculations in the Show Cause Notice and order passed by the original authority - Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Wrongful Availment of CENVAT Credit
2. Reversal of Proportionate Credit under Rule 6(3A) of CENVAT Credit Rules, 2004
3. Calculation of Demand for Reversal of Credit
4. Imposition of Penalties

Issue-wise Detailed Analysis:

1. Wrongful Availment of CENVAT Credit:
The appellants, authorized dealers for automobiles and accessories, were engaged in promotional activities and marketing of insurance and financial products, receiving commissions for these services. The department observed that the appellants availed CENVAT credit on input services used for both taxable services and exempted sales activities, necessitating a reversal of credit as per Rule 6(3A) of CENVAT Credit Rules, 2004. A Show Cause Notice (SCN) dated 26.3.2012 was issued for the period October 2010 to September 2011, proposing to demand ?4,76,362/- for wrongly availed and utilized credit. The original authority confirmed this demand along with interest and penalties, which was upheld by the Commissioner (Appeals) but later remanded by the Tribunal for denovo adjudication.

2. Reversal of Proportionate Credit under Rule 6(3A) of CENVAT Credit Rules, 2004:
In the denovo adjudication, the original authority held that the appellant wrongly availed credit of ?3,70,181/- for the period October 2010 to September 2011 and confirmed the demand along with interest and penalties. The appellant argued that they had reversed more credit than required, specifically ?4,12,547/- for the period April 2011 to September 2011, which was higher than the required ?59,961/-. The original authority initially agreed that no reversal was required for security and maintenance services for October 2010 to March 2011 but erroneously concluded that the appellant had not reversed the credit, confirming a demand of ?3,70,181/-.

3. Calculation of Demand for Reversal of Credit:
The appellant contended that the demand of ?4,76,362/- was inflated and provided detailed calculations showing that they had reversed ?18,53,982/- in total, much higher than the amount arrived at by the original authority. The learned AR presented detailed calculations indicating that the correct reversal amount should be ?8,36,253/-, with a balance payable of ?4,23,706/- after considering the already reversed amount of ?4,12,547/-. The adjudicating authority’s calculations were based on incorrect figures, leading to an erroneous demand.

4. Imposition of Penalties:
The original authority imposed a penalty of ?37,000/- under Rule 15(1) of CENVAT Credit Rules, 2004 r/w section 76 of the Finance Act, 1994, and a separate penalty of ?5,000/- under section 77 of the Finance Act, 1994. The Commissioner (Appeals) remanded the matter for examining the appellant’s claim of higher reversal but did not interfere with the confirmation of interest and penalties. The Tribunal, after reviewing the submissions and calculations, concluded that the appellant had not carried forward the CENVAT credit closing balance of ?14,41,435/- from March 2011 to April 2011, effectively reversing the credit in their books of account, thus extinguishing their liability.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential relief, noting that the appellant had no further liability to reverse the credit for the disputed period. The detailed and fair submission by the learned AR regarding the calculations was highly appreciated. The judgment was pronounced in open court on 31.3.2022.

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