Reversal of Cenvat Credit: CESTAT - Jurishour No. 1 Latest

Q: Is reversal of Cenvat credit allowable?

The CESTAT in the case of M/s. Electro Steel Casting Ltd v/s Commissioner of Service Tax, Kolkata held that there is no provision under the Cenvat Credit Rules, 2004 or in the Finance Act, 1994 which requires for reversal of Cenvat credit for the services provided for which no consideration has been received by an assessee.

The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that there is no provision under the Cenvat Credit Rules, 2004 or in the Finance Act, 1994 which requires for reversal of Cenvat credit for the services provided for which no consideration has been received by an assessee.

The bench of Ashok Jindal, Member (Judicial) and K. Anpazhakan (Technical Member) has observed that the appellant have maintained Contract-wise/project-wise separate records in its accounting software (SAP). In this method of accounting, each contract/project was shown as a separate profit centre. Therefore, we hold that separate records with respect to exempt and taxable outward supply were maintained by the Appellant in compliance with Rule 6 of the Cenvat Credit Rules. Thus, the appellant is not liable to pay an amount equivalent to 5/8% of the value of exempted goods, as demanded in the order.

Background

The appellant, M/s. Electro steel Castings Limited is a public limited company engaged in the manufacture of ductile iron pipes and pipe fittings classifiable under Chapter 73 for which it holds a valid Central Excise Registration. The assessee also has an infrastructure division, operating as a Separate Business Unit, which executes EPC projects/contracts on turnkey basis for both governmental and non-governmental entities.

The Appellant is duly registered with the Service Tax Authorities for the execution of such projects/contracts.

The records of the Appellant for the period October 2007 to March 2012 were audited by the authorities. The audit team observed that the appellant has not paid service tax on various output services and availed irregular Cenvat credit on services. On the basis of those observations by Audit, a show cause notice was issued to the appellant containing 8 different allegations.

Regarding irregular availment of Works Contract Composition Scheme with respect to the Work Orders TC No. 70 and TC No. 103, the appellant submits that these contracts were eligible for composition scheme as clarified Board in terms of Circular No. 128/10/2010 – ST dated 24 August 2010. The factum of availment of composition scheme in respect of the said two contracts was duly disclosed in the service tax returns filed by them for the period in which the first tranche of payments was received after 1 June 2007.

The appellant submits that no mode and manner in which the option under Rule 3(3) of the Composition Rule has to be exercised has been prescribed. In the absence of such formal requirement in wring to avail the option, the payment made by them under the scheme is construed as deemed exercise of the option under the Scheme.

The appellant submits that there is no suppression of facts with intention to evade payment of tax established in this case. They have been filing returns regularly disclosing all information to the department. They submits that there were multiple audit conducted on the appellant’s records. Also, the entire demand has been raised based on their profit and loss account and balance sheet. Thus, the appellant submits that the demands confirmed in the impugned order is not sustainable on the ground of limitation also.

Conclusion

The tribunal held that all the demands confirmed in the order are set aside, on merit as well as on limitation, except the demand of service tax of Rs.18,128/- along with interest, confirmed under the category of ‘Business Auxiliary Service’. Since the amount has already been paid by the appellant from their Cenvat account on 31 May 2013 along with interest, appropriate the payment of service tax and interest against the demand confirmed in this order.

FAQs

Is reversal of Cenvat credit allowable?

The CESTAT in the case of M/s. Electro Steel Casting Ltd v/s Commissioner of Service Tax, Kolkata held that there is no provision under the Cenvat Credit Rules, 2004 or in the Finance Act, 1994 which requires for reversal of Cenvat credit for the services provided for which no consideration has been received by an assessee.