2013 (1) TMI 323 - AT - Service Tax

Utilizing CENVAT Credit in discharging service tax liability of GTA service (outward freight) - imposition of penalty under Section 76 - Held that - It is not in dispute that utilization of CENVAT Credit on the GTA service (inward freight) was available to an assessee, till 18.04.2006 in discharging service tax on GTA service (outward freight) & under a bona fide mistake and belief, they had continued to utilize the CENVAT Credit availed on the amount of the service tax paid on the GTA service (inward freight), while discharging the liability as consignor for the GTA service (outward freight). The availment of the CENVAT Credit and its utilization were duly reflected in their ST-3 returns filed with the Department periodically As decided in CCE & C, Daman vs. PSL Corrosion Control Services Ltd 2010 (3) TMI 784 - GUJARAT HIGH COURT & CST, Bangalore vs. Motor World 2012 (6) TMI 69 - KARNATAKA HIGH COURT Section 80 stipulates that no penalty shall be imposable on an assessee under Sections 76, 77 or 78 ibid if the assessee proves that there was reasonable cause for the said failure. The Appellants have submitted that the lapse occurred due to their presumption that the adjustments of output service tax against input service tax is allowable, which has not been otherwise communicated to them by the Department. Hence, this is an appropriate case to invoke the provisions of Section 80 - in favour of assessee.

Summary

Issues:
Appeal against penalty imposed under Section 76 of the Finance Act, 1994 for utilizing CENVAT Credit wrongly.

Analysis:
The case involved an appeal by the Revenue against an Order-in-Appeal passed by the Commissioner Of Customs & Central Excise (Appeals), Guwahati. The Respondent, engaged in manufacturing LM Coke, availed the service of Goods Transport Agency (GTA) and utilized CENVAT Credit on service tax paid for inward freight towards outward freight service tax liability. A show cause notice was issued for recovery of short-paid service tax due to improper credit utilization. The Adjudicating Authority confirmed the demand and imposed a penalty under Section 76 of the Finance Act, 1994. The Respondent paid the outstanding service tax later but contested the penalty in appeal. The Revenue argued that the penalty should be upheld as the Respondent rectified the mistake only after adjudication, indicating lack of voluntary payment intent.

The Respondent contended that the credit misuse was due to a bona fide mistake as they were unaware of an amendment in the CENVAT Credit Rules. They claimed no intention to evade tax, as the entire service tax liability was paid using the credit, with no refund claimed. Citing relevant case laws, they argued against penalty imposition under Section 76. The Tribunal considered both sides' arguments and focused on the penalty issue. It noted the Respondent's genuine mistake in utilizing CENVAT Credit meant for inward freight towards outward freight service tax. The Tribunal agreed that the Respondent's actions were based on a bona fide belief and that they had duly reflected credit utilization in their returns. The Commissioner (Appeals) invoked Section 80 of the Finance Act, 1994, finding a reasonable cause for the failure to pay tax, and set aside the penalty under Section 76.

Referring to precedents, the Tribunal emphasized that penalty imposition should not be automatic and that Section 80 could be invoked with sufficient cause for default in tax payment. Citing judgments from Karnataka and Gujarat High Courts, the Tribunal upheld the Commissioner's decision, stating the Respondent had shown a reasonable cause for the tax payment failure. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the Order-in-Appeal.