2015 (1) TMI 42 - AT - Service Tax

CENVAT Credit - Imposition of penalty - whether penalties are required to be imposed upon the appellant and whether cenvat credit for the corresponding period is admissible to the appellants - Held that - Appellant is not contesting the issue on leviability of service tax. The arguments of the appellant for setting aside the penalties imposed are on the ground that ST-3 returns were filed belatedly along with payment of tax and interest and therefore, penalties are not imposable upon them. Belated filing of returns and payment of taxes along with interest is permissible under the Finance Act, 1994. If the view expressed by the Revenue is accepted then every delay in payment will attract penalties and provisions, regarding non issuance of show cause notice when entire service tax and interest is paid, will become redundant. There is no evidence in the show cause notice indicating that there was any suppression on the part of the appellant with intention to evade payment of tax. The entire service tax was paid by the appellant, along with interest, before the issue of show cause notice. Accordingly, it is held that order of the lower authorities regarding imposition of penalties under Section 76 and 78 of the Finance Act, 1994 is required to be set-aside. So far as denial of cenvat credit is concerned, it is observed that no show cause notice has been issued to the appellant for denial of cenvat credit and confirming demand without issue of show cause notice to that effect is in violation of principles of natural justice. Further the observations made by the first appellate clearly convey that cenvat credit was denied merely for procedural lapses. In the realm of liberalisation in the scheme of Cenvat Credits availed and reflected in the books of accounts of the appellant, as taken on the basis of duty paying documents to that effect, procedural latches cannot be made the basis for rejection of cenvat credit. - Decided in favour of assessee.

Summary

Issues Involved:
Whether penalties are required to be imposed upon the appellant and whether cenvat credit for the corresponding period is admissible to the appellants.

Analysis:

Penalties Imposition:
The appellant argued that there was no intention to evade tax, as all transactions were recorded, returns were filed belatedly with interest paid, and all tax liabilities were settled before the show cause notice. The appellant cited various case laws to support their argument. The appellant contended that penalties should not be imposed as per Section 80 of the Finance Act, 1994. The Tribunal referred to a previous case where penalties were set aside due to reasonable cause for delayed tax payment. The Tribunal agreed with the appellant that penalties under Sections 76 and 78 of the Finance Act, 1994 should be set aside as there was no evidence of suppression to evade tax.

Cenvat Credit Denial:
The Revenue defended the denial of cenvat credit due to late filing of returns by the appellant. However, the appellant argued that no show cause notice was issued for the denial of credit and procedural lapses should not be a basis for denial. The Tribunal observed that denying cenvat credit without a show cause notice violated natural justice principles. The Tribunal noted that procedural lapses should not be the sole reason for rejecting cenvat credit, especially when the credits were reflected in the appellant's books. Consequently, the Tribunal allowed the appeals by setting aside the first appellate authority's order.

In conclusion, the Tribunal ruled in favor of the appellant by setting aside the penalties imposed under Sections 76 and 78 of the Finance Act, 1994, as there was no evidence of intent to evade tax and all dues were paid before the show cause notice. Additionally, the denial of cenvat credit was overturned as no show cause notice was issued, and procedural lapses should not be the sole reason for rejecting credits. The judgment highlights the importance of adhering to natural justice principles and considering the circumstances surrounding tax payments and credit denials.