Whether assessee can avail suo motto wrongly paid duty from Cenvat credit ?

PJ/Case law/2014-15/2225

Case:- M/s RATNAMANI METALS AND TUBES LTD Vs COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, AHMEDABAD-III

Citation:- 2014-TIOL-667-CESTAT-AHM

Brief facts:- The brief facts of the case were that the appellant were engaged in manufacture of excisable goods falling under chapter heading No 73 of the first Schedule to the Central Excise Tariff Act, 1985 and also have service tax registration under the category of "Goods Transport Agency". They avail cenvat credit of duty under Cenvat Credit Rules, 2004. During the test check of the records of the appellant by the CERA, it was noticed that the appellant had paid Rs 3,67,35,737/- towards inward freight during October 2005 to January 2007. The appellant had paid the service tax and education cess aggregating to Rs 12,48,195/- on the aforesaid amount by debiting CENVAT account which was inadmissible under the provisions of Rule 3(4) of the Cenvat Rules, 2004. The appellant, subsequently, paid the said amount of Rs 12,48,195/- vide Challan No. 12/2006 dated 29.03.2007 in cash and simultaneously took credit of the said amount suo moto at entry No. 1862 dated 30.03.2007 in their service tax credit account on the basis of the amount paid them, by way of cash. It was also noticed that the appellant had paid Rs 46,81,186/- to non residents for the Sales Commissions during the period December, 2005 to December 2006 and paid the Service Tax and Education Cess, totalling to Rs 4,77,481/- by debiting in the Cenvat account. In this case also the service tax liability ought not to have been paid from the cenvat account. The said payment of services tax was required to be made by way of cash. The appellant, subsequently, made the payment of Rs 4,77,481/- in cash vide challan No. 12/2006 dated 29.03.2007 and took the credit of Rs 4,77,481/- in their cenvat account suo moto at entry No. 1863 dated 30.03.2007 on the basis of the amount paid by them by way of cash.
The aforesaid suo moto credit taken by the appellant in cenvat account was incorrect. No such provisions was prescribed in the Central Excise Act 1944 or the
Rules made there under, including the Cenvat Credit Rules, 2004. The appellant should have followed the provisions of Section 11B of Central Excise Act, 1944 for claiming the refund of Central Excise duty, which had also been made applicable to service tax under the provisions of Section 84 of the Finance Act 1994.
In view of the above facts, show cause notice was issued to the appellant for recovery of Cenvat credit amounting to Rs 17,52,676/- under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act 1944, interest u/s 11AB of the Act and penalty u/r 15(10 of Cenvat Credit Rules, 2004."
The adjudicating authority confirmed recovery of cenvat credit along with applicable interest and impose penalty under Rule 15(1) of the cenvat credit rules 2004. Aggrieved by such an order, the appellant preferred appeal before the first appellate authority. The first appellate authority after following the duty process of laws had rejected the appeal based upon the judgment of the larger bench of the tribunal in the case of M/s BDH Industries ltd vs Commissioner - 2008(229)ELT 364 (Tri. LB) - 2008-TIOL-1211-CESTA T-MUM-LB.

Appellant’s contentions:- Ld Advocate appearing on behalf of the appellant drew attention to the impugned order and also the allegations made in the show cause notice. He also drew attention to the facts of the case and submitted that the appellant were eligible for cenvat credit which had been utilised. It was his submission that in somewhat similar issue in the case of M/s Automotive Metal Stampings Pvt Ltd vs CCE, Pune, - 2011(04)LCX02007 - 2011-TIOL-731-CESTA T-MUM Dvn bench held in favour of the assessee. He took through the case as had been settled by the larger bench in the case of BDH Industries Ltd., and submitted that the facts of the case of BDH Industries Ltd would not apply in the case of the appellant.

Respondent’s contentions:- Ld Dept Representative on the other hand submitted that the issue had been settled by the larger bench in this case.

Reasons of judgment:- After hearing both sides and perusing records Hon’ble judge were of the view that the issue in the case was regarding the availment of su moto credit by the appellant after making good the said payment by making cash payment in PLA. The lower authority had dis-allowed such credit on the ground that the appellant should have applied for refund of service tax paid by them as per the provision under section 11B of the central excise act 1994 made applicable to service tax refunds and reliance was placed in the case of M/s BDH Industries Ltd (supra).
At the outset, it was to be recorded that there was no dispute as to the fact that appellant initially discharged the service tax liability on the goods transport agency by debit in Cenvat credit, subsequently on being pointed out by the audit party paid the same in cash through PLA.
Based on this factual matrix Hon’ble judge found that, having discharged duty in cash, appellant herein had taken cenvat credit suo moto in the books of accounts, both the authorities had relied on Larger Bench decisions of BDH Industries case. He found that factually there was no dispute that under reverse charge mechanism appellant discharged the Service Tax liability by debit in Cenvat account. There was no dispute that the credit balance in Cenvat account during the material period was an eligible credit to appellant. In his considered view the issue in this case squarely falls within the ratio as decided by this Bench in the case of Sopariwala Exports Pvt Ltd - [2013(291)ELT 70 (Tri.-Ahmd) - 2013-TIOL-1936-CESTA T-A HM and fortified by the decisions of Hon'ble High Court of Gujarat in the case of Subramaniyan & Co as decided in Tax appeal No. 1151 of 2011. He also found that in a recent decision on similar issue Hon'ble High Court of Madras in the case of ICMC Corporation Ltd - 2014-TIOL-121-HC-MA D-CX held in favour of the assessee.

Decision:- Appeal was allowed.

Comment:- The analogy drawn from the case is that if the assessee discharges his service tax liability by debiting Cenvat credit account which was actually required to be paid in cash as in case of Reverse charge Mechanism, later rectifies his mistake and makes the payment of such tax in cash again, then in such situation he can take credit of the Cenvat wrongly debited initially as there lies no dispute that the credit balance in Cenvat account during the material period was an eligible credit to assessee.
Prepared by:- Ranu Dhoot

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