2023 (5) TMI 241 - AT - Service Tax

Non-payment of service tax on the input services - removal of input as such from the factory - requirement of reversal of CENVAT Credit as per the provisions of sub-rule (5) of Rule 3 of CCR - HELD THAT - On careful examination of the said statutory provision, it transpires that no identical provisions has been provided for reversal of Cenvat credit in respect of the input services. Since, the legislative intent behind the said rule is not to insist for reversal of Cenvat credit on service tax amount, in case where the inputs are removed as such, the action taken by the department in confirming the cenvat demand in the present case shall not stand judicial scrutiny. In an identical case, the Hon ble Punjab and Harayana High Court in the case of COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH VERSUS PUNJAB STEELS 2010 (7) TMI 252 - PUNJAB AND HARYANA HIGH COURT has held that in absence of any statutory provisions, creating the embargo for reversal of Cenvat credit oninput services, the department cannot insist for reversal of such credit from the assesse. This court finds that the view as expressed by the Tribunal is strictly in conformity with the Rules. Rule 2(k) of the Rules defines input , whereas Rule 2(l) defines input service , meaning thereby both the terms have been defined independently. Rule 3 defines the term Cenvat credit , which includes duty paid under various enactments and also the service tax leviable under Section 66 of the Finance Act, 1994. Rule 3(5) of the Rules only talks about the Cenvat credit taken on inputs or capital goods. It does not refer to the Cenvat on input service, whereas Rule 5, on which reliance is sought to be placed by the Revenue, specifically talks about the Cenvat credit on any input or input Service used in the manufacture of final product. This rule pertains to refund in case of exports, which stands altogether on different footings. The CBEC vide instruction dated 07.12.2015 in order to bring uniformity in the practice of assessment has issued the minutes of the Tariff conference conveying the said statutory provision in line with the judgment delivered by the Hon ble Punjab and Harayana High Court in the case of Punjab Steels. There are no merits in the impugned order, insofar as it has confirmed the adjudged demands on the appellant holding that the they are required to reverse to Cenvat credit of service tax paid on input services for the purpose of sub-rule (5) of Rule 3, ibid, in the eventuality, when the inputs are removed as such. Appeal allowed.

Summary

Issues Involved:
The issues involved in the judgment are the confirmation of amount along with interest and penalties under Section 78 of the Finance Act, 1994, related to the reversal of Cenvat credit of Service Tax paid on input services when inputs are removed from the factory premises.

Confirmation of Amount, Interest, and Penalties:
The appeal was directed against the order confirming an amount along with interest and penalties under Section 78 of the Finance Act, 1994. The appellant, engaged in packing and repacking of cement, availed Cenvat credit of Central Excise duty and service tax paid on input services. The dispute arose when the appellant removed inputs from the factory but did not reverse the Cenvat credit of Service Tax paid on the input services. The Department initiated proceedings, culminating in the impugned order dated 28.11.2014 imposing penalties and confirming the amount. The appellant argued that the provisions do not require reversal of Cenvat credit on input services when inputs are removed, citing a judgment of the Hon'ble Punjab and Haryana High Court and CBEC instructions.

Interpretation of Rule 3 of Cenvat Credit Rules:
The Tribunal examined Rule 3 of the Cenvat Credit Rules, which enables manufacturers to avail credit on duties and taxes paid on inputs and input services. While the rule mandates reversal of credit on inputs and capital goods if removed from the factory premises, it does not explicitly require reversal of Cenvat credit on input services. The Tribunal found that the legislative intent does not necessitate the reversal of Cenvat credit on service tax amount when inputs are removed as such. Citing the judgment of the Hon'ble Punjab and Haryana High Court, the Tribunal held that in the absence of statutory provisions for such reversal, the Department cannot insist on it. The Tribunal emphasized that Rule 3(5) only pertains to inputs and capital goods, not input services.

Decision and Dismissal of Appeals:
The Tribunal dismissed the appeals, finding that no substantial question of law arose. It held that the view aligns with the Rules, emphasizing the definitions of 'input' and 'input service' under Rule 2. The Tribunal highlighted that Rule 3(5) specifically addresses Cenvat credit on inputs or capital goods, not on input services. Referring to a Constitution Bench decision, the Tribunal emphasized that tax statutes must be interpreted based on plain and unambiguous language. Additionally, the Tribunal noted that the CBEC issued instructions in line with the Punjab and Haryana High Court judgment, further supporting the appellant's position. Consequently, the impugned order confirming the demands on the appellant to reverse Cenvat credit of service tax on input services was set aside, and the appeal was allowed in favor of the appellant.