The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) quashed the excise duty demand, ruling that when there is no revenue loss, a liberal view must be taken.
Welmech Engineering Company Pvt. Ltd., the appellant engaged in manufacturing furnaces and related parts, availed credit for the entire service tax paid by its service providers for security and manpower services. Under Notification No. 30/2012-ST, the service provider was liable to pay 25% of the tax, while the recipient was required to pay 75% under the Reverse Charge Mechanism ( RCM ).
In this case, the service providers paid 100% of the tax, and the appellant availed credit for the portion it was supposed to pay. The tax authorities issued a show cause notice, demanding Rs. 2,89,685 for the period from July 2012 to July 2013, along with interest and an equal penalty, citing an ineligible credit claim. The Commissioner (Appeals) upheld the demand.
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Before the CESTAT, the appellant’s counsel argued that the total tax liability had been paid to the government and the credit denial was a mere procedural issue without any revenue loss.
The revenue countered that the appellant could only avail credit on the tax it directly paid under RCM and that procedural compliance was essential.
A single-member bench comprising M. Ajit Kumar (Technical Member) observed that litigation should focus on substantive justice rather than strict procedural compliance, especially when no revenue loss has occurred.
The tribunal referenced the Supreme Court’s ruling in Sugandhi v. P. Rajkumar case where it was held that if a procedural mistake does not harm the other party, courts should focus on delivering fair justice rather than strictly enforcing technical rules. It also explained that litigation is meant to uncover the truth, which is the foundation of justice, and courts should take necessary steps to ensure fairness in every case.
The tribunal set aside the demand with interest and penalty order. The tribunal allowed the appeal, granting consequential relief to the appellant.
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