Whether reversal of credit tantamount to non-availment of credit so as to avail abatement benefit?

PJ/CASE LAW/2016-17/3128

Case:- M/S DETECT ELECTRONICS Vs COMMISSIONER OF CENTRAL EXCISE, AURANGABAD

Citation:- 2016-TIOL-1274-CESTAT-MUM

Brief Facts:-The appellant has rendered the services of erection, commissioning or installation service during the period 2006-07 to 2008-09 by availing benefit of Notification No. 1/2006-ST dated 01.03.2006. The adjudicating authority has held that the appellant had not satisfied the condition of the Notification No. 1/2006 ST, in as much they claim abatement of 67% of the taxable value despite availing the CENVAT credit on the few input and inputs services. Coming to such a conclusion the adjudicating authority confirm the Service Tax liability along with interest and also imposed penalties.

Appellant’s Contention:-Learned Consultant would submit that they have reversed the entire amount of the CENVAT credit availing during the period; hence they are eligible under Notification No. 1/2006-ST for this proposition. They relied upon the decision of Hon'ble Supreme Court in the case of Commissioner of Central Excise & Customs Vs. Precot Meridian Ltd. - 2015 (325) ELT 234 (S.C.)

Respondent’s Contention:-Learned Departmental Representative while reiterating the findings of the lower authorities would submit that the exemption notification needs to be read in its entirety and conditions needs to be followed for the availment of such benefit of exemption. He would submit that the appellant availed the benefit of 67% abatement of the value of services under Notification No. 01/2006-ST. He would rely upon the decision of the Hon'ble Apex Court in the case of Kartar Rolling Mils Vs. Commissioner of Central Excise, New Delhi - 2006-TIOL-46-SC-CX and on the decision of the Hon'ble Apex Court in the case of Collector of Customs (Preventive), Amritsar Vs. Malwa Industries Limited - 2009-TIOL-17-SC-CX.

Reasoning Of Judgment: - On considering the submissions made by both sides, we find that the issue involved in this case is in a narrow compass. The appellant availed the benefit of Notification No. 01/2006-ST on discharge of Service Tax liability after availing the abatement of 67% but it is denied on the ground that he had availed the CENVAT credit on the inputs and input services during the material period. We find that there is also no dispute that the appellant had reversed that entire CENVAT credit so availed before the adjudication order is as good as non-availment of credit, which is supported by the judgment of Hon'ble Supreme Court in the case of Precot Meridian Ltd. - 2015 (325) ELT 234 (S.C.). We reproduce relevant paragraphs:
“Indubitably, the benefit of exemption Notification No. 5/99-C.E., dated 28-2-1999 is available subject to certain conditions and one of the conditions is that the assessee had not taken any credit under Rule 57A or Rule 57B or Rule 57Q of the Central Excise Rules, 1944, in the process of dyeing, printing, bleaching or mercerizing in the manufacture of dyed, printed, bleached or mercerised yarn.
As mentioned above, this Notification was issued on 28-2-1999. The product of the respondent is covered by the description of goods at Serial No. 133 of the Table annexed with the General Exemption Notification. The assessee, however, had utilized the MODVAT credit in the previous two years prior to 28-2-1999. As per the assessee, after the issuance of this notification, no such MODVAT credit was ever taken or utilized. Even the earlier MODVAT credit which was utilised was returned or paid back on 10-1-2005. In this scenario, question arose as to whether the assessee fulfills the aforesaid condition in order to become eligible to get the benefit of the Exemption Notification.
We note that five-Member Bench of the Tribunal in the case of ‘Franco Italian Co. Pvt. Ltd. v. Commissioner' [2000 (120) E.L.T. 792 (T.-LB) had taken the view that even if the MODVAT credit was utilised but, thereafter, refunded, it would amount to not utilizing the said MODVAT credit. Same view has been taken by the High Court of Allahabad in ‘Hello Minerals Water (P) Ltd. v. Union of India' [2004 (174) E.L.T. 422 (All.)].
On a specific query put by the Court, we were informed that as far as the aforesaid two judgments are concerned, they were accepted by the Department and no appeal was filed there against. In the impugned judgment, the Tribunal has decided the issue in favour of the assessee relying upon the aforesaid two decisions.
We, thus, do not find any reason to interfere with this order. The appeal is dismissed accordingly."

As regards the judgment of the Hon'ble Apex Court relied upon by the Revenue, we find the judgment of Hon'ble Apex Court in the case of Precot Meridian Ltd. (supra) is directly on the point and recent one. We find that the impugned order is unsustainable and liable to be set aside and we do so. The impugned order is set aside and appeal is allowed with consequential relief if any.

Decision:-Appeal allowed.

Comment:- The gist of this case is that reversal of Cenvat credit taken by mistake amounts to ‘non-availment of cenvat credit’. Consequently, the benefit of abatement which is admissible only on satisfying the condition that no cenvat credit has been taken is rightly available to the assessee. This view was taken in the light of Apex Court decision in the case of Precot Meridian Ltd.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3128

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