2011 (8) TMI 356 - AT - Service Tax

Penalty under Rule 15(2) of CENVAT Credit Rules 2004 read with Section 11AC of Central Excise Act 1944 - appellant paid the Service Tax credit confirmed with interest even before issuance of Show Cause Notice - He prays that no proceedings should have been initiated and matter should have been closed by relying upon the provisions of Section 11A(2B) of Central Excise Act 1944 - The Trade notice No.48/2008(Madurai C.Ex. T.N.) dt.3.10.08 issued by CCE Madurai stated In view of the above provisions it is brought to the notice of trade and industry that Show Cause Notice under Section 11A(1) of Central Excise Act 1944 and under Section 73(1) of Finance Act 1994 will not be served to the defaulters provided they made immediate payment of the duty involved along with interest except under the situations mentioned in Explanation 1 provided under Section 11A(2B) and Sub-section (4) of Section 73 - Therefore issue of Show Cause Notice itself was wrong - Therefore the demand for CENVAT Credit with interest is upheld as not contested and penalties imposed upon the appellant are set aside.

Summary

Issues:
1. Eligibility of CENVAT Credit on Service Tax for services received prior to 10.09.04.
2. Applicability of penalty under Rule 15(2) of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944.
3. Interpretation of Section 11A(2B) of the Central Excise Act, 1944.
4. Validity of initiating proceedings and imposition of penalties in the absence of suppression or fraud.

Analysis:

Issue 1: Eligibility of CENVAT Credit
The appellant, engaged in manufacturing pharmaceutical products, availed CENVAT Credit on Service Tax for technical know-how services provided by M/s Pfizer Ltd. from 01.10.04 onwards. However, it was discovered that the services rendered prior to 10.9.04 were also included in the payment made by the appellant. The original adjudicating authority initially held the appellant eligible for credit, but on appeal by the Revenue, it was decided that the appellant was not entitled to the credit.

Issue 2: Applicability of Penalty
The impugned order imposed penalties on the appellant under Rule 15(2) of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944. The appellant argued that no penalty should be imposed as both the service provider and receiver had paid the Service Tax, eliminating any intention to evade payment. The appellant also cited precedents where penalties were not imposed once the Service Tax credit taken was reversed with interest.

Issue 3: Interpretation of Section 11A(2B)
The appellant invoked Section 11A(2B) of the Central Excise Act, 1944, which allows the assessee to voluntarily pay any duty short levied or not levied before the issuance of a Show Cause Notice. The appellant contended that upon promptly paying the disputed amount with interest, as soon as the ineligibility of the credit was pointed out, no proceedings should have been initiated against them.

Issue 4: Validity of Proceedings and Penalties
The Tribunal found that the appellant had promptly paid the disputed amount upon being informed of the ineligibility of the credit. The Tribunal also noted that there was no suppression, fraud, or mis-declaration of facts, as both the service provider and receiver had paid the Service Tax, and the credit was based on proper documentation. Therefore, the issuance of the Show Cause Notice was deemed incorrect, and the penalties imposed on the appellant were set aside.

In conclusion, the Tribunal upheld the demand for CENVAT Credit with interest but set aside the penalties imposed on the appellant due to the prompt payment of the disputed amount and the absence of suppression or fraud in the case.