Assessee Liable to Pay Interest on Short Reversal of Common Cenvat Credit: CESTAT

Assessee Liable to Pay Interest on Short Reversal of Common Cenvat Credit: CESTAT

Introduction

The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that an assessee is liable to pay interest on short reversal of common cenvat credit used for exempted services. The tribunal observed that the provisions of Rule 6(3A) of the Cenvat Credit Rules are specific with regard to common credit used in dutiable and exempted goods/services.

Factual Background

The assessee, an 100% Export Oriented Unit (EOU), was availing cenvat credit of service tax paid on various input services used for providing both taxable as well as exempted services. The assessee was required to reverse the ineligible cenvat credit as per the provisions of Rule 6(3A)(c)(iii) of the Cenvat Credit Rules, 2004.

Procedural Background

The revenue authorities noticed that the assessee had short reversed certain credit amounts and demanded differential amount of Rs. 8,75,04,359/- and interest of Rs. 52,93,414/- under Rule 6(3A)(e) of the Cenvat Credit Rules, 2004. The assessee challenged the demand before the CESTAT.

Issues

1. Interest Liability: Whether the assessee is liable to pay interest on short reversal of common cenvat credit used for exempted services.

2. Applicability of Rule 6(3A): Whether the provisions of Rule 6(3A) of the Cenvat Credit Rules, 2004 are applicable to the assessee.

Contentions of the Parties

Assessee's Contention: The assessee submitted that as per Rule 14 of the Cenvat Credit Rules, 2004, interest is liable to be paid on wrong availment and utilization of cenvat credit. Since the assessee had sufficient balance in its credit ledger, the question of payment of interest does not arise.

Revenue's Contention: The revenue submitted that the assessee was not eligible to avail cenvat credit attributable to exempted goods/services. However, the provisions allowed them to avail the cenvat credit on both dutiable and exempted goods/services provided the cenvat credit availed on the exempted goods/services was reversed as per the provisions of Rule 6(3A).

Reasoning & Analysis

The bench of P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) observed that the provisions of Rule 6(3A) of the Cenvat Credit Rules, 2004 are specific with regard to common credit used in dutiable and exempted goods/services. The tribunal opined that the assessee is liable to pay interest from the stipulated date till the reversal of credit.

Decision

The tribunal dismissed the appeal, holding that the assessee is liable to pay interest on short reversal of common cenvat credit used for exempted services.

Implications

The CESTAT's decision highlights the importance of complying with the provisions of Rule 6(3A) of the Cenvat Credit Rules, 2004. The ruling ensures that assessees are liable to pay interest on short reversal of common cenvat credit used for exempted services.

Conclusion

The tribunal's judgment in this case emphasizes the need for assessees to comply with the provisions of Rule 6(3A) of the Cenvat Credit Rules, 2004. The decision is a significant victory for the revenue authorities, ensuring that assessees are held accountable for short reversal of common cenvat credit.

In this case the appellant was represented by Ms. Priyanka Rathi Chinmayi, Advocate. Meanwhile the respondent was represented by Mr. Rajesh Shastry, Superintendent (AR)