2024 (12) TMI 82 - AT - Service Tax

Demand of interest and levy of penalty u/s 77(2) of the Finance Act, 1994 - failure to file correct details in their ST-3 returns - reversal of CENVAT Credit when capital goods were removed after their uses as waster/scrap - Rule 3(5A) of the Cenvat Credit Rules, 2004 - HELD THAT - It is a fact apparent on record that appellant has adopted a particular prescribed method by showing the amount of Cenvat credit available to them in a particular month and amount is required to be reversed in terms of Rule 3(5A) of Cenvat Credit Rules, 2004 and net-off these amount, they are taking Cenvat credit and showing in their ST-3 returns. Apart from that, no discrepancy was found with the appellant in the records. In that circumstances, it cannot be termed that appellant has not reversed Cenvat credit in terms of Rule 3(5A) at the time of filing the ST-3 returns. Therefore, as appellant has not taken access Cenvat credit by reversing Cenvat credit under Rule 3(5A) of Cenvat Credit Rules, 2004, no interest is payable by the appellant. Penalty under Section 77(2) of the Act - HELD THAT - It is found that as the method adopted by the appellant for availment of Cenvat credit was known to the department and there was intent of the appellant by non-declaration of correct details. In that circumstances, penalty under Section 77(2) of the Act is not imposable. The impugned order is set aside - appeal allowed.

Summary

Issues:
Appeal against demand of interest and penalty under Section 77(2) of the Finance Act, 1994 based on the method of Cenvat credit reversal for telecom infrastructural support services involving capital goods.

Analysis:
The appellant, engaged in providing telecom infrastructural support services, availed Cenvat credit on capital goods like lead acid batteries, electric generator sets, etc. The appellant calculated Cenvat credit reversal under Rule 3(5A) of the Cenvat Credit Rules, 2004 using a net-off method. Initially, no separate reversal was shown under Rule 3(5A) upon removal of capital goods as waste/scrap. However, the appellant rectified this by revising ST-3 returns later, showing the reversal separately for the relevant period. A show cause notice was issued for recovery of Cenvat credit on removed capital goods, interest, and penalty under Section 77(2) of the Finance Act, 1994. The demand for Cenvat credit recovery was dropped, but interest and penalty were imposed, leading to the appeal.

The main issue was whether the appellant was liable to pay interest and penalty for not filing correct details in ST-3 returns. The appellant argued that they followed a method of netting off Cenvat credit available and reversed under Rule 3(5A) in their ST-3 returns, thus no interest or penalty should be imposed. On the other hand, the Authorized Representative contended that interest and penalty were justified as correct details were not filed in time, despite later revisions.

The Tribunal found that the appellant had followed a prescribed method of Cenvat credit reversal and netting off, without any discrepancies in records. As the appellant had not taken excess Cenvat credit by failing to reverse credit under Rule 3(5A), no interest was deemed payable. Moreover, since the department was aware of the method used by the appellant and there was no intent to deceive, the penalty under Section 77(2) of the Act was deemed inapplicable.

Consequently, the impugned order was set aside, and the appellant was granted relief, if any, in accordance with the decision.