CESTAT: IBM India Liable to Pay Interest on Delayed Reversal of Common Cenvat Credit for Exempted Services
Pranav B Prem
The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member), has held that an assessee is liable to pay interest on the short reversal of common Cenvat credit used for exempted services.
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The case arose from an appeal filed by IBM India Pvt. Ltd., a 100% Export Oriented Unit (EOU), against an order passed by the Commissioner of Central Excise and Service Tax, LTU Bangalore. The appellant had been availing Cenvat credit of service tax paid on various input services used for providing both taxable as well as exempted services. Under Rule 6(3A)(c)(iii) of the Cenvat Credit Rules, 2004, an assessee is required to reverse the ineligible Cenvat credit on or before June 30 of the succeeding financial year. Where such reversal is short or delayed, interest is payable from the due date until the actual date of payment.
From the records and returns, it was found that IBM had short-reversed Cenvat credit. Consequently, a differential amount of ₹8,75,04,359 was demanded, along with interest of ₹52,93,414 under Rule 6(3A)(e) of the Rules, and a nominal penalty of ₹5,000 was imposed. IBM argued that as per Rule 14 of the Cenvat Credit Rules, interest is payable only on the wrong availment and utilization of credit. Since the company had sufficient balance in its credit ledger, there was no wrongful utilization, and hence, no interest liability should arise. The appellant relied on decisions of the Karnataka High Court in CCE v. Bill Forge Pvt. Ltd. and CCE v. Pearl Insulation Ltd.
The Revenue countered that Rule 6(3A) is a specific provision that applies to common Cenvat credit availed for both taxable and exempted services. It requires reversal of ineligible credit by the stipulated date, and in case of delay, interest is mandatory. They relied on the Bombay High Court’s ruling in CCE Thane-I v. Nicholas Piramal (India) Ltd. and the Supreme Court’s judgment in UOI v. Ind-Swift Laboratories Ltd.
After hearing both sides, the Tribunal noted that IBM was required to reverse ₹12.14 crore by June 30, 2009, but only reversed ₹3.39 crore in June 2009. The balance ₹8.75 crore was reversed belatedly in September 2009. The bench observed that the scheme of Rule 6(3A) expressly provides for interest liability in case of short or delayed reversal of common credit. The reliance placed on Rule 14 by the appellant was found to be misplaced since Rule 6(3A) operates independently with specific obligations.
Referring to the Supreme Court’s rulings in Ind-Swift Laboratories Ltd. and Steel Authority of India Ltd., the bench reiterated that statutory provisions in taxing statutes must be applied as they stand, without importing equitable considerations. Since the delay in reversal was admitted, interest liability automatically followed. Accordingly, the Tribunal upheld the order of the Commissioner, confirming the demand of interest on the belated reversal of Cenvat credit, and dismissed the appeal.
Appearance
Counsel for Appellant/ Assessee: Priyanka Rathi Chinmayi
Counsel for Respondent/ Department: Rajesh Shastry, Superintendent (AR)
Cause Title: IBM India Private Limited V. Commissioner of Service Tax
Case No: Service Tax Appeal No. 2817 of 2011
Coram: P.A. Augustian (Judicial Member), R. Bhagya Devi (Technical Member)
