2016 (2) TMI 183 - HC - Central Excise

Distribution of Cenvat credit without obtaining registration and without pro rata distribution - revenue neutral exercise - input service distributor (ISD) - Held that - It is true that the Government had framed Rules of 2005 for registration of input service distributors, who would have to make application to the jurisdictional Superintendent of Central Excise in terms of Rule 3 thereof. Sub-rule (2) of Rule 3 further required any provider of taxable service whose aggregate value of taxable service exceeds certain limit to make an application for registration within the time prescribed. However, there is nothing in the said Rules of 2005 or in the Rules of 2004 which would automatically and without any additional reasons dis-entitle an input service distributor from availing Cenvat credit unless and until such registration was applied and granted. It was in this background that the Tribunal viewed the requirement as curable. Particularly when it was found that full records were maintained and the irregularity, if at all, was procedural and when it was further found that the records were available for the Revenue to verify the correctness, the Tribunal, in our opinion, rightly did not dis-entitle the assessee from the entire Cenvat credit availed for payment of duty - Decided against revenue Coming to the question of penalty, right from the show cause notice stage till the final disposal of the show cause notice proceedings, we find little evidence to support the allegations of willful misstatement, suppression, fraud or collusion on the part of the assessee. In fact, perusal of the show cause notice would show that the entire basis of the Revenue was wrongfully availment of the credit. Mere wrongfully availment without element of mens rea and that too for the purpose of evading payment of duty would not be sufficient to impose penalty. The adjudicating authority, without any basis or evidence, merely mechanically recorded that the assessee had, by reason of willful misstatement, suppression of fact or in contravention of the provisions of the Rules, evaded payment of central excise duty. He was not even sure whether this was a case of willful misstatement or suppression of fact or contravention of provisions of the Rules.- Decided against revenue

Summary

Issues:
1. Whether Customs Excise & Service Tax Appellate Tribunal erred in reversing the order confirming the demand for wrongfully availed Cenvat credit?
2. Whether the Tribunal was right in setting aside the penalty under Section 11AC of the Central Excise Act?

Analysis:

Issue 1:
The appeals arose from a case where the respondent was availing Cenvat credit on duty paid for various services by one unit for the clearance of another unit. The adjudicating authority confirmed the duty demands, citing violations of Cenvat credit rules. The Tribunal reversed this decision, considering the situation revenue-neutral as the credit was utilized within the same location. The Tribunal found no restriction on credit utilization without proportionate allocation and viewed any irregularity as procedural. The absence of legal requirements to avail credit based on services received during the relevant period led to setting aside the demand. The Tribunal's decision was based on the rules in place at the time and the revenue-neutral nature of the actions.

Issue 2:
Regarding the penalty under Section 11AC of the Central Excise Act, the Tribunal found no evidence to support allegations of willful misstatement, suppression, or fraud by the assessee. The show cause notice lacked substantial evidence to prove intentional evasion of duty. The adjudicating authority failed to establish mens rea or deliberate contravention of rules. Without concrete evidence of willful evasion, the Tribunal ruled against imposing the penalty. The Tribunal's decision highlighted the lack of basis for imposing penalties without proof of intent to evade duty.

In conclusion, the High Court dismissed both appeals, upholding the Tribunal's decision to set aside the demand for wrongfully availed Cenvat credit and the penalty under Section 11AC of the Central Excise Act. The judgment emphasized adherence to the rules in force at the time and the absence of evidence supporting intentional evasion of duty by the assessee.