2014 (8) TMI 27 - AT - Service Tax

Availment of wrong CENVAT Credit - amount was reversed before before issue of SCN but interest was paid later - Invocation of extended period of limitation - Penalty - Held that - The Commissioner (A) has taken the view that the appellant is working under self-assessment scheme and he is bound to be honest in taking credit and discharging liability - If the appellant had intentionally taken the credit, they need not have paid the amount before the issue of show-cause notice but waited for show-cause notice to be issued and challenged the same on the ground of limitation thereafter. The very fact that the appellant paid the amount before issue of show-cause notice and when it was found that interest liability was not fully discharged, they paid the balance, would go in favour of the appellants - this was not a case for invoking extended period for imposition of penalty - penalty imposed on the appellant is set aside and demand for wrongly availed Cenvat credit with interest is upheld as not challenged - Decided partly in favour of assessee.

Summary

Issues:
1. Availment of credit under Sec. 3(5) of the Customs Tariff Act, 1985 for payment of service tax.
2. Imposition of penalty on the appellant.

Analysis:
1. The case involved the appellants availing credit of additional duty of customs revisable under Sec. 3(5) of the Customs Tariff Act, 1985, and utilizing it for payment of service tax for output services. The audit conducted in April 2011 revealed this, following which a show-cause notice was issued for recovery of the wrongly availed credit with interest and imposition of penalty. The appellant, while not contesting the service tax liability and interest, contested the imposition of penalty. The appellant argued that the service tax liability with interest had been paid before the show-cause notice was received, invoking Sec. 73(3) of the Finance Act, 1994, which states that no show cause notice shall be issued if the full tax amount with interest is paid without suppression or misdeclaration. The appellant claimed that the error was unintentional and promptly rectified upon discovery, thus penalty imposition was unwarranted.

2. The appellant's counsel contended that the full amount was paid before the show-cause notice was issued, contrary to the respondent's argument. The tribunal considered the timeline of events and found that the payment was indeed made before the show-cause notice was received, thereby accepting the appellant's claim. The tribunal further assessed whether the intention to evade payment of duty could be established and whether the extended period could be invoked. It was noted that the appellant rectified the mistake voluntarily upon discovery, indicating a lack of intent to evade payment. The original authority had upheld the extended period based on the timing of the credit repayment post-show-cause notice, but the tribunal disagreed, emphasizing that the appellant's prompt payment indicated good faith. Consequently, the tribunal set aside the penalty imposed on the appellant while upholding the demand for the wrongly availed credit with interest, as it was not contested.

In conclusion, the appellate tribunal ruled in favor of the appellant, setting aside the penalty while upholding the demand for the wrongly availed credit with interest, as the appellant had rectified the error promptly upon discovery, demonstrating good faith and lack of intent to evade payment.