Order Date – 30 April 2024

Parties: Commissioner of Central Tax Vs M/s. Motorola Mobility India Pvt Ltd.

Facts –

• The Respondent, Motorola Mobility India Pvt. Ltd., were found to be wrongly claimed credit on ineligible services during an audit. They were trading mobiles and parts, an exempted service since April 1, 2011, making them ineligible for CENVAT Credit. Accordingly, demand was raised in terms of Rule 14 of CCR, 2004 read with Section 73(1) of the Finance Act, 1994 along with interest under Section 75 of Finance Act, 1994.
• The Commissioner has held that since they had sufficient balance in their cenvat credit account throughout the Financial Year 2011-12 and 2012-13 and since the respondent had reversed the proportionate credit immediately after audit observation much before the issue of show-cause notice, the reversal of such credit would amount to not taking the credit and therefore, dropped the interest.

Issue –

• Whether the interest liability can be dropped on reversal of proportionate credit immediately after audit observation?

Order –

• The Tribunal observed that if the manufacturer or provider of service had failed to exercise the option under sub-rule 6(3) of the CCR, 2004 will be allowed to pay the proportionate credit along with the interest at the rate of 15% per annum from the due date for payment of amount till the date of payment. Hence the appellant is eligible for the benefit of reversing the proportionate credit only if it is done along with interest as per law.
• In the present case, the Commissioner while allowing payment of proportionate credit as per Rule 6(3A), with regard to interest holds that interest is not liable to be paid since sufficient balance was available in their account. The Commissioner has failed to notice that Rule 6(3A) is only an option given to the appellant allowing reversal of credit at a later date only if it is paid along with interest.
• Hence, the tribunal upheld the Commissioner’s order with regard to confirmation of service tax demand. The Revenue’s appeal with regard to demand of interest is upheld and accordingly interest is to be paid on the above demand in terms of Rule 6(3A) of the Cenvat Credit Rules, 2004.