Sufficient closing CENVAT credit may be adjusted against service tax demand, extinguishing tax and interest liability.

The appellant, a service-tax-registered construction service provider, faced demands concerning alleged short payment of service tax, irregular CENVAT credit, and service tax on amounts received for flats sold to another company.

In the second appeal, the Department alleged that the appellant had not declared or paid service tax on ₹12,13,25,982 received for construction services during April–June 2017.

The appellant asserted that it had CENVAT credit of ₹62,30,327 as of 30 June 2017, sufficient to cover the confirmed service-tax demand of ₹54,59,669, and sought adjustment of that balance.

The adjudicating and appellate authorities had confirmed the demands; the appellant challenged those orders before the Tribunal.

Whether the appellant’s available CENVAT credit balance as of 30 June 2017 could be adjusted against the confirmed service-tax demands, despite its failure to file the relevant ST-3 return and pay tax.

Whether penalty under Section 78 was warranted for failure to file ST-3 returns and declare taxable services, and, if so, whether it should be reduced.

The Tribunal considered the Point of Taxation Rules, 2011, in relation to the alleged timing of service-tax payment, and Rules 6(1), 9 and 14 of the CENVAT Credit Rules, 2004, in relation to the alleged irregular credit.

For adjustment of available CENVAT credit against the service-tax demand, it relied on Uttaranchal Cable Network v. Commissioner of Customs, Central Excise and Service Tax, Uttarakhand, Final Order No. 51902/2021, dated 13 October 2021, following which it permitted the adjustment.

The Tribunal also applied Section 78 of the Finance Act, 1994, imposing a reduced penalty because the appellant had not filed returns in time or declared its taxable service.

The Tribunal accepted that the appellant had a sufficient CENVAT credit balance on 30 June 2017 to meet the demands in both appeals.

It held that the appellant’s failure to file the ST-3 return did not prevent adjustment of that balance, and, relying on Uttaranchal Cable Network, allowed the credit to be set off against the demands.

As a consequence, it found no service-tax demand sustainable and no interest payable.

The Tribunal nevertheless treated the failure to file returns and declare taxable services as warranting a penalty under Section 78, while reducing the penalty to 25% of the service tax payable.

It imposed a penalty under Section 78, reduced to 25% of the service tax payable, and disposed of both appeals on those terms.