Reversal Of CENVAT Credit Along With Interest Amounts To Non-Availment Of Credit: CESTAT

The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside a service tax demand of over Rs. 4.28 crore along with penalties imposed under the Finance Act, 1994, held that reversal of CENVAT credit along with interest amounts to non-availment of credit, thereby restoring the benefit of exemption notifications. The bench of Ashok Jindal (Judicial Member) and K.Anpazhakan, Member (Technical) has observed that the demand for excess CENVAT credit was not sustainable as the amount had already been reversed with interest. The service tax on Renting of Immovable Property Service had been duly discharged. In the absence of any deliberate suppression or intent to evade tax, penalties were not warranted. The appellant had entered into an agreement with the Government of Meghalaya for construction of an office-cum-commercial complex and residential complex on land owned by the State Government. For the period 2009–10 to June 2012, the company paid service tax by availing the benefit of Notification No. 01/2006-ST, discharging tax on 33% of the gross taxable value. Post July 2012, the appellant paid service tax at 25% of the gross taxable value under Notification No. 26/2012-ST. During an audit, the Department observed that the appellant had availed CENVAT credit on certain input services while simultaneously claiming abatement benefits under the exemption notifications, which prohibited such credit. It was also alleged that the appellant was not eligible for Notification No. 01/2006-ST due to availing CENVAT credit. Post July 2012, the benefit under Notification No. 26/2012-ST was not available as the construction was undertaken on government land and not intended for sale. Excess CENVAT credit of ₹27,429 had been utilized. Service tax on Renting of Immovable Property Service had not been properly discharged. A show cause notice dated 24 October 2014 demanded ₹4,28,39,702 in service tax along with recovery of excess CENVAT credit and proposed penalties. The adjudicating authority confirmed the entire demand with interest and imposed penalties of ₹10,000 under Section 77 and ₹4,28,67,131 under Section 78 of the Finance Act, 1994. The appellant argued that for the pre-July 2012 period, the wrongly availed CENVAT credit had already been reversed along with interest, and the Department was informed on 20 March 2014. Therefore, the benefit of Notification No. 01/2006-ST could not be denied. For the post-July 2012 period, although the benefit under Notification No. 26/2012-ST might not be available, the appellant was eligible for valuation under Rule 2A(ii) of the Service Tax (Determination of Value) Rules, 2006, as amended by Notification No. 24/2012-ST. Accordingly, service tax was payable on 40% of the total consideration (after 60% abatement), and the differential tax along with interest had already been paid and intimated to the Department. The excess CENVAT credit of ₹27,429 had been reversed with applicable interest. Service tax liability on Renting of Immovable Property Service had been fully discharged when properly segregated. The Tribunal observed that once the CENVAT credit had been reversed along with interest, it amounts to non-availment of credit. Therefore, the benefit of Notification No. 01/2006-ST could not be denied for the period up to June 2012. The demand for this period was held unsustainable. For the post-July 2012 period, the Tribunal agreed that while the appellant may not be eligible for Notification No. 26/2012-ST, it was entitled to valuation under Rule 2A(ii) as amended. Since the appellant had already paid service tax on 40% of the value along with interest, no further demand could survive. Setting aside the impugned order in entirety, the Tribunal allowed the appeal and ruled that no penalty was imposable in the facts and circumstances of the case. Case Details Case Title: M/s Asian Housing & Constructions Pvt. Ltd. v. Commissioner of CGST & Central Excise, Kolkata Citation: JURISHOUR-121-CESTAT-2026(Kol)Case No.: Service Tax Appeal No. 76841 of 2016Date: 20 February 2026Date of Pronouncement: 25 February 2026Counsel for Appellant: Shri S.K. Jha, Authorized RepresentativeCounsel for Respondent: Shri S.K. Goyal, Chartered Accountant Click Here To Read Order Read More: Exemption Interpretation Not Customs Broker’s Responsibility: CESTAT Quashes Licence Revocation

Reversal Of CENVAT Credit Along With Interest Amounts To Non-Availment Of Credit: CESTAT

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