2019 (5) TMI 1811 - AT - Service Tax

Demand of Interest and penalty - entire service tax liability was discharged by making use of available/accumulated Cenvat credit before issuance of SCN - HELD THAT - There is no provision in the Finance Act 1994 read with Service Tax Rules enabling the adjudicating authority to assume the date of filing returns as the date of adjustment of Cenvat credit with tax paid. Accordingly the order of Court below is illegal. The demand of interest under Section 75 and penalty under Section 78 are set aside - penalty under Section 70 read with Rule 7C is upheld - Appeal allowed in part.

Summary

Issues:
1. Whether interest under Section 75 was rightly demanded.
2. Whether penalty under Section 78 was rightly imposed.

Analysis:
The appeal in this case revolves around the demand for interest under Section 75 and the imposition of penalties under Section 78. The Tribunal had previously remanded the matter to the adjudicating authority to consider the returns and evidence of payment of service tax, directing a de novo order of adjudication. The Joint Commissioner, in response, provided a detailed chart showing the discharge of duty liability from eligible Cenvat credit by the assessee, indicating no balance service tax was payable for the period in question. However, the adjudicating authority assumed the date of filing returns as the date of adjustment of Cenvat credit with tax paid, leading to the calculation of interest under Section 75 and the imposition of penalties under various sections.

Upon reviewing the contentions and the record, the Tribunal found that there was no provision in the Finance Act, 1994, read with the Service Tax Rules, allowing the adjudicating authority to use the date of filing returns as the date of adjustment of Cenvat credit with tax paid. Consequently, the Tribunal deemed the lower court's order as illegal and set aside the demand for interest under Section 75 and the penalty under Section 78. However, the penalty under Section 70, read with Rule 7C, for the delay in filing returns, was upheld.

In conclusion, the appeal was partially allowed, with the appellant being entitled to consequential benefits as per the law. The Tribunal's decision clarified the incorrect application of the law regarding the adjustment of Cenvat credit with the tax paid, leading to the setting aside of the interest demand and penalty under Section 78 while upholding the penalty under Section 70.