2014 (8) TMI 624 - AT - Service Tax

Waiver of pre deposit - CENVAT Credit - Penalty under Rule 15 - Held that - Appellant intends to end the litigation with the department. It has already reversed the Cenvat credit to the extent indicated in adjudication order with deposit of interest of ₹ 49,401/- as is apparent from the said order. The crucial issue is only penalty that has been imposed under Rule 15(2) of Cenvat Credit Rules, 2004. Learned Adjudicating Authority invoked Section 11AC for imposition of penalty under Rule 15(2). When this sub-rule is read, that does not bring a case of service tax issue since the input and capital goods are coverage of that sub-section. When sub-section (3) has enacted, mechanism to deal with input services which was subject matter at page 8 of the adjudication order, there is no reference to Section 11AC in that sub-section. In absence of legislative intent to invoke Section 11AC for reading sub-section (3) the adjudication order is not sustainable insofar as penalty imposed under Rule 15(2) is concerned. Appropriate sub-section is sub-section (3). It is pertinent to mention that while sub-section (2) deals with element of Section 11AC, sub-section (4) mentions about element of Section 78 of the Finance Act, 1994 for no mechanism provided in sub-rule (3) to invoke Section 11AC of Central Excise Act, 1944, nor Section 78 of the Finance Act, 1994, levy of penalty of ₹ 10,000/- shall be justified in the fitness and circumstances of the case - Decided partly in favour of assessee.

Summary

Issues:
1. Interpretation of Rule 15(2) of Cenvat Credit Rules, 2004 regarding penalty imposition.
2. Applicability of Section 11AC of the Central Excise Act, 1944 in penalty determination.
3. Reduction of penalty amount and resolution of the dispute.

Issue 1: Interpretation of Rule 15(2) of Cenvat Credit Rules, 2004 regarding penalty imposition.
The learned Counsel argued that Rule 15(2) did not cover input service credit, which was addressed by sub-rule (3) of Rule 15. The Counsel proposed a reduction in the disputed amount and suggested the appellant reverse the balance Cenvat credit against the demand. The representative for Revenue supported the authorities' decision.

Issue 2: Applicability of Section 11AC of the Central Excise Act, 1944 in penalty determination.
The Adjudicating Authority imposed a penalty under Rule 15(2) invoking Section 11AC, despite the absence of reference to this section in sub-rule (3) dealing with input services. The judgment highlighted the mismatch between the legislative intent and the penalty imposition, stating that the penalty should align with the relevant sub-section, which in this case was sub-section (3).

Issue 3: Reduction of penalty amount and resolution of the dispute.
The appellant aimed to conclude the litigation by complying with the reversal of Cenvat credit and interest deposit as per the adjudication order. The judgment granted partial relief by confirming the duty and interest demand but significantly reducing the penalty to only &8377; 10,000, justifying this amount based on the circumstances of the case and the absence of a specific mechanism in sub-rule (3) to invoke Section 11AC or Section 78 of the Finance Act, 1994.

This judgment delves into the interpretation of Rule 15(2) of the Cenvat Credit Rules, 2004, the application of Section 11AC in penalty determination, and the resolution of the dispute concerning the penalty amount. It emphasizes the necessity for alignment between penalty imposition and the relevant sub-section, highlighting the legislative intent behind penalty provisions. The decision ultimately reduces the penalty significantly, aiming to bring an end to the litigation while ensuring a fair and justified resolution based on the circumstances of the case.