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Judgment
The present appeal is directed against the impugned order dated 07.08.2020 passed by the Commissioner (Appeals) whereby the Commissioner (Appeals) has rejected the appeal of the appellant.
Briefly the facts of the present case are that the appellants are holders of Service Tax Registration for rendering taxable services "Construction of Residential Complex Services", Renting of Immovable Property Services" and "Management, Maintenance or Repair Service". During the course of audit on the records of appellant, it was noticed that the appellant has short paid service tax for the period from April 2017 to June 2017 due to wrong utilization of CENVAT credit, wrongly availed CENVAT Credit of Rs.13,49,920/- on ineligible input services, short paid service tax of Rs.1,52,346/- for the period from October 2015 to march 2016 and short paid interest of Rs.22,183/-. Therefore, a SCN dated 31.01.2019 was issued to the appellant demanding therein service tax of Rs.13,18,113/- for the period from April 2017 to June 2017 and service tax short paid of Rs.1,52,346/- for the period from October 2015 to March 2016 for recovery of wrongly availed CENVAT credit of Rs.13,49,920/- on ineligible input services and for demand of short paid interest of Rs.22,183/- along with interest and imposition of penalty under Section 76 and Section 78 of the Finance Act. The Assistant Commissioner of Central Excise and Central Tax, Udupi vide his OIO dated 26.09.2019 confirmed the demand of Rs.11,38,618/- on ineligible CENVAT credit which are not related to taxable service, confirmed the demand of service tax of Rs.1,52,346/- for the period from October 2015 to March 2016, along with interest and also imposed equal penalty. Further, he confirmed the demand of interest of Rs.22,183/-. The demand of service tax of Rs.13,18,113/- and Rs.2,11,302/- was dropped. Aggrieved by the OIO, the appellant filed appeal before the Commissioner who rejected the appeal of the appellant. Hence, the present appeal.
Heard both the parties and perused the records.
Learned Counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts, the law and the binding judicial precedents. He further submitted that the three demands have been raised by the Department in the impugned order namely:
(A) Reversal of CENVAT credit in relation to flats remaining unsold as on the date of completion of the project on 20.03.2017 - Sai Radha Pride-J
(B) Service Tax short paid of Rs.1,52,346/-
(C) Applicability of demand of interest of Rs.22,183/-
4.1. On the first issue, learned Consultant appearing for the appellant submitted that Sai Radha Pride project was completed on 20.03.2017 and service tax authorities have demanded reversal of CENVAT credit on unsold flats as on the date of completion under Rule 2(l) read with Rule 3(4) of CENVAT Credit Rules 2004. The Department has computed demand of reversal of Rs.11,38,618/- on total CENVAT credit taken from May 2015 till 30.06.2017 in proportion to unsold area in the project. To counter this demand, learned Consultant submitted that eligibility of CENVAT credit shall be seen at the time of receipt of services and subsequent events are irrelevant for testing the eligibility of such CENVAT credit. In this regard, the appellants themselves relied upon the following decisions:
Spenta International Ltd. Vs Commissioner- 2007 (216) ELT 133.
Binani Cement Ltd. Vs CCE, 2002 (143) ELT 577.
ABC Engineering Works Vs CCE, Guntur, 2010 (20) STR 145 (Tri. Bang.)
Supreme Court in the case of Grasim Industries Ltd. Vs Commissioner-2005 (179) ELT A38 (SC).
CCE Vs Surya Roshni Ltd- 2003 (179) ELT A38 (SC).
4.2. He also submitted that there is no dispute regarding eligibility of credit at the time of availing CENVAT credit in terms of Rule 2(l) of CCR 2004. He also submitted that there is no one-to-one correlation between credits availed and output. The eligible credit availed is indefeasible and there is no reason for reversal of CENVAT credit on post completion of project. Rule 6 of the CENVAT Credit Rules does not require reversal of CENVAT credit availed prior to the completion of flats. In this regard, he relied upon the following decisions:
M/S. TPL Developers Versus Commissioner Of Central Tax [2019 (3) TMI 37 - CESTAT Bangalore]
Principal Commissioner vs Alembic Ltd [2021] 126 taxmann.com3 (Gujarat)]
It was held in these decisions that there was no requirement of reversal in terms of Rule 6 up to 01.04.2016 when the rules got amended. Even though Rule 6 has to be applied after 01.04.2016, the said rule is not invoked in the show cause notice and demand invoking Rule 2(l) is not sustainable.
4.3. He also submitted that even assuming Rule 6 has to be applied then the computation of reversal should be made in terms of formula prescribed in Rule 6(3A) of CCR (as inserted vide notification no. No.13/2016 w.e.f 01.04.2016). He further submitted that as per the formula the reversal of common input services taken in a financial year in proportion to exempted turnover to total turnover in that financial year. According to the learned Consultant, the amount so computed is worked out to be Rs.1,79,776. He also submitted that there is no provision in CENVAT Credit Rules which requires computation of reversal amount based on unsold area/ total area. He further submitted that there is excess reversal of Rs.25,29,168 (Debit in CENVAT credit register of Rs.27,08,994 minus Actual reversal U/R 6(3A) of CCR of Rs.1,79,776) which is required to be adjusted. He further submitted that the impugned order seems to have ignored the provision and mechanism of reversal required to be followed under the law. He further submitted that the appellant voluntarily reversed CENVAT credit of Rs.27,08,994 by debiting CENVAT credit register on 30.06.2017 and informed the Audit Officer vide letters dated 20.06.2018 and 03.08.2018 but the said fact was ignored by both the authorities. He also submitted that reversal by way of debit in CENVAT credit register is also a valid reversal for the purpose of Rule 6 of CCR and failure to report such reversal in form ST-3 return is a procedural lapse and thus cannot affect the validity of reversal made by way of debit in CENVAT credit register. As far as the demand of service tax short paid to the extent of Rs.1,52,346/- is concerned, the learned Consultant submitted that the excess reversal of CENVAT credit of Rs.25,29,168/- shall be considered to include payment of service tax of Rs. 1,52,346 for period October 2015 to March 2016 and same shall stand discharged by way of reversal of CENVAT credit. He also relied upon the Circular No.962/05/2012-CX dated 28.03.2012 which clarifies that the restriction on the utilization of the CENVAT credit accruing subsequent to the last date of the month or quarter in which the arrears arise, is not applicable to the demands confirmed under section 11A of the Central Excise Act, 1944. As far as the demand of interest of Rs.22,183/- on belated payment of Service tax liability, the learned Consultant submitted that as on March 2017, there was unutilized balance of CENVAT credit of Rs.10,61,644/- as evident from form ST-3 for period October 2016 to March 2017 and interest liability does not arise when there is sufficient balance of CENVAT credit. For this submission, he relied upon the following decisions:
M/s. Oil & Natural Gas Corporation Limited Vs Commissioner of Central Excise & S.T., Surat [Appeal no. ST/11378/2014
SAVIO INDIA LTD vs COMMR. OF CUS., C.EX. & S.TAX, COIMBATORE 2016 (340) E.L.T. 735 (Tri. - Chennai)
Commissioner Of C. Ex., Puducherry-I vs Cestat Chennai [2017 (346) E.L.T. 80 (Mad.)]
ESSAR STEEL LTD.[2010 (251) E.L.T. 255 (Tri. - Bang.)] as upheld by Karnataka High Court in 2015 (317) E.L.T. A210 (A.P.)
ISGEC [2010] 1 taxmann.com 508 (New Delhi - CESTAT)]
MIDAS CARE PHARMA. P. LTD [2008 (226) E.L.T. 412 (Tri. - Mumbai)]
4.4. Learned Consultant also questioned invocation of extended period of limitation on the ground that there is no wilful suppression or mis-representation with intention to evade tax.
On the other hand, learned AR defended the impugned order.
After considering the submissions of both the parties and perusal of the material on record, I find that the Department has confirmed the demand of Rs.11,38,618/- in respect of the unsold flats whereas as per the appellant, they are required to reverse only Rs.1,79,776/- in terms of the formula under Rule 6 (3A) and both the authorities have wrongly quantified the amount. Further, I find that as per the submissions of the appellant, they have reversed the credit of Rs.27,08,994/- in their books of accounts and submitted the complete details to the Department for verification but the same reversal was not considered for not having disclosed full credit in Returns. Further, I find that as per Circular No.962/05/2012 dated 28.03.2012, the credit so claimed and reversed should be accepted by the Department. Further, I find that in case of TPL Developers cited supra, this Tribunal has held that there was no requirement of reversal in terms of Rule 6 up to 01.04.2016 when the Rules got amended. Further, I find that the amended Rules has not been invoked in the SCN and as per the formula prescribed under Rule 6(3A) of the CCR inserted vide Notification No.13/2016 with effect from 01.04.2016, the amounts so computed works out to be Rs.1,79,776/- as per the appellant. Therefore, on this issue, the matter needs to be remanded back to the Original Authority with a direction to verify the quantum of credit available in the books and reversal made by the appellant to determine the exact demand of tax from the appellant, if any.
6.1. As far as the demand relating to shorty payment of service tax to the tune of Rs.1,52,343/- is concerned, this demand has been accepted by the appellant but as per the submission of the appellant that this can be adjusted out of closing balance of Rs.9,19,950/- remaining unutilized as on 30.06.2017 or as against the amount already excess reversed by him and the same is permissible as per Circular dated 28.03.2012. Further, I hold that this adjustment of short paid tax will also be considered by the Original Authority after verification of the quantum of credit in the books of the appellant and the reversal made by them as submitted by the learned Consultant.
6.2. As far as demand of interest is concerned, I find that there was a sufficient balance in the CENVAT credit account of the appellant during the relevant period and therefore by applying the ratio of the Hon'ble Karnataka High Court in the case of Bill Forge Pvt. Ltd. and Oil and Natural Gas Corporation Ltd. decided by the Tribunal of Ahmedabad Bench, I am of the opinion that the appellant is not liable to pay interest on the delayed payment.
Therefore keeping in view my discussion above, I remand the case back to the Original Authority with a direction to pass a fresh order after verification of the quantum of credit as per the records and the reversal made by the appellant and if the Original Authority comes to the conclusion that the appellant has excess reversed CENVAT credit then the same may be considered for setting off the demand determined in terms the formula under Rule 6(3A) which according to the appellant works out to Rs.1,79,776/-. Therefore, with these directions, the present appeal is allowed by way of remand and the Original Authority is directed to do the needful within a period of two months after getting the certified copy of the order. The Original Authority will afford an opportunity of hearing to the appellant before passing the fresh order. In the result, appeal is allowed by way of remand.
(Order pronounced in the open court on 18/08/2021)