CESTAT Upholds Interest Demand on Short Reversal of Common Cenvat Credit

CESTAT Upholds Interest Demand on Short Reversal of Common Cenvat Credit

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.

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 and exempted services. The assessee was required to reverse the ineligible cenvat credit as per the provisions of Rule 6(3A) of the Cenvat Credit Rules, 2004.

Procedural Background

The assessee had short reversed certain credit amounts, and the department demanded differential amounts and interest. The assessee argued that since it had sufficient balance in its credit ledger, the question of payment of interest does not arise.

Issues

The main issue before the CESTAT was whether interest liability arises on the short reversals of the cenvat credit availed by the assessee on the exempted services.

Contentions of the Parties

Appellant: The appellant argued 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: The revenue submitted that the assessee was required to reverse the cenvat credit availed on exempted goods/services as per the provisions of Rule 6(3A). The Rules also provide for payment of interest whenever there is short reversal.

Reasoning and Analysis

The CESTAT observed that the interest provisions as per Rule 6(3A) are specific with regard to common credit used in dutiable and exempted goods/services. The Tribunal opined that when specific provisions are provided under Rule 6(3A) of the Cenvat Credit Rules 2004, the assessee had to reverse the ineligible cenvat credit and pay interest in case of delay.

Implications

The judgment highlights the importance of timely reversal of cenvat credit and payment of interest on short reversal.

Relief Sought

The appellant sought to set aside the demand of differential amount and interest. The CESTAT dismissed the appeal, holding that the assessee is liable to pay interest from the stipulated date till the reversal of 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).