2022 (5) TMI 1199 - AT - Service Tax

CENVAT Credit - Input Service Distribution - excess availment of Cenvat credit of more than 20% of credit - Rule 7 of the CCR, 2004 - levy of interest and penalty on the amount of Cenvat credit availed by it on Capital Goods to the full extent in the first year of purchase instead of 50% - HELD THAT - The issue regarding availment of ISD credit by the Tirupati unit for materials used in other units, the Appellant has submitted that there was no restriction in availment of Cenvat credit as distributed by the ISD unit under Rule 7 of the CCR, 2004. The issue is settled by the judgment of the Hon ble Karnataka High Court in the case of COMMISSIONER OF C. EX., BANGALORE-I VERSUS ECOF INDUSTRIES PVT. LTD. 2011 (2) TMI 1130 - KARNATAKA HIGH COURT wherein it was held by the Court that Merely because the input service tax is paid at a particular unit and the benefit is sought to be availed at another unit, the same is not prohibited under law. It is in this context, the manufacturer is expected to register himself as a input service distributor and thereafter, he is entitled to distribution of credit of such input in the manner prescribed under law - in the instant case of the Appellant also there is no dispute as to the availment of Cenvat credit by the Appellant and the distribution by ISD. The only allegation raised in that the said services are not used by the Appellant and hence Cenvat credit should not be allowed. Utilisation of excess Cenvat credit by ignoring the provisions of Rule 6(3)(c) of the CCR, 2004 - HELD THAT - The Appellant has produced certain reconciliations by way of additional submissions which were not produced before the lower authorities. Since the entire issue in this regard revolves around the calculations as submitted by the Appellant, it is deemed fit to remand the matter to the Adjudicating authority to verify the correctness of the calculations of the Appellant after providing an opportunity of being heard and thereon pass a reasoned and speaking order for the same. The Appellant will be at liberty to produce all relevant statements and records as may be required during such remand proceedings. Thus to the above extent the appeal is allowed by way of remand to the adjudicating authority. Interest on the excess Cenvat credit availed by the Appellant on capital goods in the first year of purchase - penalty in violation of Rule 4(2)(a) of the CCR, 2004 - HELD THAT - The matter is squarely covered by the judgment of the Hon ble Karantaka High Court in the case of COMMISSIONER OF CENTRAL EXCISE SERVICE TAX LARGE TAXPAYER UNIT, BANGALORE VERSUS M/S BILL FORGE PVT LTD, BANGALORE 2011 (4) TMI 969 - KARNATAKA HIGH COURT where it was held that Section do not stipulate interest is payable from the date of book entry, showing entitlement of Cenvat credit. Interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is taken or utilized wrongly - In the instant case of the appellant it is not disputed that the said amounts has been utilised by the Appellant also, hence considering the above we are of the opinion that interest is payable by the Appellant for the amounts utilised towards payment of service tax from the date of availment till the due date of availment and for the purposes of computation of the same, we remand the matter to the adjudicating authority. Penalty - HELD THAT - Since the demand of Cenvat credit itself has been dropped in the adjudication proceedings, the question of imposition of penalty under Rule 14 of the CCR, 2004 does not arise. Appeal disposed off.

Summary

Issues:
1. Distribution of Cenvat credit on account of ISD
2. Excess availment of Cenvat credit under Rule 6(3)(c) of CCR, 2004
3. Liability to pay interest and penalty on Cenvat credit availed on Capital Goods

Analysis:

Issue 1: Distribution of Cenvat credit on account of ISD
The Appellant challenged the demand of Cenvat credit confirmed by the Ld. Adjudicating authority. The Tribunal referred to a judgment of the Hon’ble Karnataka High Court which clarified the rules for distribution of credit by an input service distributor. The Court highlighted that the law only imposes two limitations on the distribution of credit: it cannot exceed the amount of service tax paid and should not be distributed in a unit exclusively engaged in exempted activities. The Tribunal found no dispute in the Appellant's case regarding Cenvat credit availment and ISD distribution. As the issue was settled by the referenced judgment, the demand was set aside.

Issue 2: Excess availment of Cenvat credit under Rule 6(3)(c) of CCR, 2004
The Appellant presented reconciliations not previously submitted to the lower authorities. The Tribunal decided to remand the matter to the Adjudicating authority for verification of the Appellant's calculations. The Appellant was directed to provide all necessary statements and records during the remand proceedings.

Issue 3: Liability to pay interest and penalty on Cenvat credit availed on Capital Goods
Referring to a judgment of the Hon’ble Karnataka High Court, the Tribunal discussed the applicability of interest on delayed payment of duty. It was established that interest is compensatory and payable from the date of wrongful utilization of Cenvat credit. The Tribunal concluded that interest was payable by the Appellant from the date of utilization till the due date. As the demand for Cenvat credit was dropped, no penalty under Rule 14 of CCR, 2004 was imposed.

In the final order, the Tribunal set aside the demand on ISD distribution, remanded the excess credit availment issue for verification, directed the Appellant to pay applicable interest, and set aside all penalties. The appeal was disposed of accordingly on 19/05/2022.