Availability of Benefit of Abatement under Notf. No. 01/2006-ST

PJ/CASE STUDY/2011-12/01

06 April 2011

PJ/Case Study/2011-12/01

CASE STUDY

Prepared By:
Sukhvinder Kaur, LLB [FYIC]
And Bharat Rathore, B. Com

Introduction: -

The benefit of abatement under Notification No. 01/2006-ST allows abatement on Mandap Keeper services on the condition that cenvat credit on inputs, capital goods or input services is not availed by the assessee. However, if an assessee avails cenvat credit on input services but later on reverses the same with interest then the benefit of abatement would be available to him…this is the issue involved in the case under study.

In the matter of M/s Indian Hotel Co Ltd (Unit: Jai Mahal Hotel, Jaipur

[Order-In-Original no. 880/ST/Dem/2010-11 dated: 28.02.2011]

Brief facts of the case: -

The Noticee is registered under Service Tax for providing Mandap Keeper, Beauty Parlor, Health Fitness, Internet, Outdoor catering, Dry cleaning, Business support, Goods Transport by Road, Membership of club or association, sponsorship, Business Auxiliary and Renting of Immovable property services and were filing ST-3 return.

The Department alleged that the Noticee had short paid service taxamounting to Rs. 3, 29, 220/- during the period from March 2006 to August 2006. It wasalso alleged that the Noticee had wrongly availed the benefit of abatement under Notification No. 1/2006-ST dated 01.03.2006 in respect of Mandap Keeper service provided by them during the period March 2006 to August 2006 as Noticee has simultaneously availed the cenvat credit on the input services.

Thereafter, Department issued show cause notice alleging that the Noticee by this act had contravened the provisions of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994. Service tax was demanded with interest and penalty was proposed to be imposed under Section 76 & 78 of the Finance Act, 1994.

Noticee’s Contentions: -

Noticee replied to the Show Cause Notice on the following contentions:

It was submitted that although cenvat credit of input services was availed by Noticee but the same was paid through the Challan with interest. Thus, the payment of cenvat credit although later on, would amount to non-taking of credit and therefore, the benefit of abatement will be available to Noticee. It is submitted that Noticee has, vide letter dated 12.08.2008 and 23.02.2009 informed the department regarding the deposit of cenvat credit availed on input services. Thus, Noticee has reversed the cenvat credit taken on the input services and the benefit of abatement under Notification No. 1/2006-ST cannot be denied to Noticee. As such Noticee has fulfilled the condition mentioned in the proviso to the said Notification.

It was submitted that the payment of cenvat credit of service tax taken earlier through challan alongwith interest would amount to reversal of cenvat credit taken. The reversal of cenvat credit alongwith interest would amount to non-availment of cenvat credit and therefore, the condition mentioned in the proviso to Notification No. 1/2006-ST is fulfilled. Reliance was placed on the judgment given in the case of Chandrapur Magnet Wire Ltd v/s CCE [2002-TIOL-41-SC-CX] wherein it was held that “reversal of credit amounts to non-availment of Cenvat credit.”

Reliance was also placed on the case of CCE v/s Bombay Dyeing & Manufacturing Co [2007 (215) ELT 3 (SC)] wherein the Supreme Court has again held that reversal of credit amount to non-availment of credit.

Similarly, reliance was placed on the case of Commissioner of Central Excise, Jaipur-II v/s M/s Raja Ram Marbles (P) Ltd & Ors [2004-TIOL-606-CESTAT-DEL] wherein it was held by the Delhi Tribunal that

Once the entire credit taken is deposited back, it cannot be claimed by the Revenue that the assessee had taken any credit of duty and, there cannot be a further demand of an amount equal to 8% of the price of the exempted goods.

This has also been held in the case of M/s Hetro Drugs Ltd v/s Commissioner of Central Excise, Hyderabad [2005-TIOL-1319-CESTAT-BANG]. Further the High Court of Gujarat has also held in the case of CCE v/s Ashima Dyecot Ltd [2008-TIOL-659-HC-AHM-CX] that reversal of credit amounts to non-taking of credit on inputs.

It was further submitted that as the Noticee have re-deposited the cenvat credit availed by us, the benefit of abatement in terms of Notification No. 1/2006-ST cannot be denied to us. In this regard, reliance was placed on the judgment given in the case of CCE & CC, Vadodara v/s M/s Ram Krishna Travels Pvt Ltd [2009-TIOL-1768-CESTAT-AHM]; CST, Ahmedabad v/s M/s Amola Holdings Pvt Ltd [2009-TIOL-1000-CESTAT-AHM]; M/s Beekay Engineering Corpn v/s CCE, Raipur [2009-TIOL-1396-CESTAT-DEL]; M/s Punjan Builders v/s CCE, Vadsdara-II [2009-TIOL-57-CESTAT-AHM]; CCE, Nagpur Vs Khemka Travels [2009-TIOL-1618-CESTAT-MUM].

Noticee also submitted that in the impugned show cause notice it is wrongly alleged that they have not submitted the statement of cenvat credit as desired under sub-rule 9 of Rule 9 of the Cenvat Credit Rules, 2004, did not replied to the Superintendent’s Service Tax Range’s letter dated 07.09.2009; while submitting the ST-3 returns for the aforesaid services, that they have not mentioned the amount of cenvat credit taken in respect of input services used for providing these output services and had suppressed that the fact of taking credit and therefore, extended period of limitation was invokable. In this regard Noticee submitted that they have not suppressed any facts from the department and had no intention to evade payment of service tax. In the impugned show cause notice itself, it is mentioned that the fact of simultaneous availment of cenvat credit and of abatement has been revealed during the audit of Noticee’s unit when they have reproduced all the records as asked by the Audit party. Therefore, there was no suppression of facts. As soon as the fact of availment of credit was pointed out to us, the Noticee have deposited an amount equivalent to the cenvat credit availed vide Challans, the copies of which were submitted to the department. Therefore, they have no intent to evade payment of service tax. The mistake of availing credit has occurred right after 01.03.2006 when the condition of simultaneous availment of cenvat credit and abatement was removed. This shows that the Noticee have by mistake kept taking the cenvat credit without realizing that it was no longer available to them. Therefore, there was no deliberate suppression but a mistake was made by them. Moreover, the Noticee have given all the details of availment of cenvat credit of service tax in the Service tax (ST-3 returns) and therefore, they cannot be said have not provided the relevant details to the Department. Thus, the extended period of limitation cannot be invoked against them.
It was submitted that Noticee has not suppressed any facts from the department and had no intention to evade payment of service tax. We have reproduced all the records as asked by the Audit party. Therefore, there was no suppression of facts. As soon as the fact of availment of credit was pointed out to us, we have deposited an amount equivalent to the cenvat credit availed vide Challans, the copies of which were submitted to the department. Therefore, we have no intent to evade payment of service tax.

It is submitted that we have already paid the cenvat credit availed on input services for the relevant period alongwith interest and in the above paras we have shown that reversal of cenvat credit amounts to non-availment of cenvat credit. Thus, the benefit of abatement cannot be denied to us. Therefore, no recovery of service tax can be effected against us. Moreover, we had no intention to evade payment of service tax; therefore, no penalty can be imposed on us.

It is submitted that we submit that the impugned show cause notice is proposing to impose penalties under Section 76 as well as under Section 78 simultaneously. In this regard, we submit that the Section 76 and Section 78 are mutually exclusive provisions and penalty cannot be imposed simultaneously under the provisions of both the Sections. Reliance was placed on M/s Anand Agencies v/s CCE (Service Tax), Coimbatore [2010-TIOL-364-CESTAT-MAD]; M/s Safe Test Enterprises v/s CCE, Salem [2010-TIOL-355-CESTAT-MAD];

It is further submitted by the Noticee that the impugned show cause notice is wrongly proposing to impose the penalty under rule 15(A) of the Cenvat credit Rules, 2004. Rule 15(A) was referred and it was submitted that this rule makes it clear that the penalty under this rule is imposable where anyone has contravened the provisions of Cenvat Credit Rules, 2004.

And whereas, there is no allegation in the entire show cause notice which say that the Noticee have contravened the provisions of Cenvat Credit Rules, 2004. In fact, the impugned show cause notice is issued for contravention of section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994. This is clear from the language of the show cause notice. As such, the show cause notice is issued for alleging that there is contravention of section 68 of the Finance Act, 1994 and rule 6 of the Service Tax Rules, 1994. It is nowhere alleged in the show cause notice that we have contravened the provisions of Cenvat Credit Rules, 2004. Thus, for what the penalty under Cenvat Credit rules is imposed, is not justified by the impugned show cause notice. There should be allegations and that too should be supported by the corroborative evidence, otherwise no penalty is imposable. Since there is no justification why penalty under rule 15(A) of Cenvat Credit Rules, 2004 is imposable; proposal to impose the penalty under rule 15(A) of these rules is not justified and is liable to be quashed.

Finding of the Adjudicating Authority: -

The Adjudicating Authority stated that the issues involved was whether benefit of abatement under Notification No. 1/2006-ST dated 01.03.2006 was admissible to the Noticee when they have deposited the amount equal to Cenvat credit availed with interest and that too before issuance of show cause notice.

The Adjudicating Authority found that during the period from March 2006 to August 2006, the Noticee had availed Cenvat credit on input services as well as had also taken benefit of abatement under Notification No. 1/2006-ST. However, the Noticee had deposited the amount of credit taken alongwith interest on 12.08.2008 well before the issuance of show cause noticee.

It was held that in such scenario, the benefit of abatement was available to the Noticee as held by the Tribunal in catena of judgments on this issue which have been cited by the Noticee in their reply.

Decision of the Adjudicating Authority:-

The proceedings initiated by the impugned show cause notice were dropped.

Conclusion:- The Adjudicating Authority rightly held that when cenvat credit was reversed or paid with interest then the benefit of abatement was available to the assessee.

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PJ/CASE STUDY/2011-12/01
06 April 2011

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