2017 (2) TMI 845 - AT - Service Tax

Interest - penalty - CENVAT credit improperly availed - Held that - Having discharged CENVAT credit and the interest therein, the respondent cannot be further saddled with penalty as sought by Revenue in this appeal for a simple reason that respondent could have entertained bonafide belief that popcorn making machines and other machines which were used by various persons outside multiplexes - reliance placed in the case of CCE v. Adecco Flexione Workforce Solutions Ltd. 2011 (9) TMI 114 - KARNATAKA HIGH COURT wherein the law has been settled as to if an amount of service tax liability on CENVAT credit is reversed on being pointed out by the departmental officers, provisions of Section 73(3) of the FA, 1994, gets attracted and SCN was not to be issued - appeal rejected - decided in favor of assessee and against Revenue.

Summary

Issues:
Revenue's appeal against order-in-original for not imposing interest and penalty on improperly availed CENVAT credit.

Analysis:
The appeal was filed by Revenue against an order-in-original that did not impose interest and penalty on the respondent for availing CENVAT credit improperly. The respondent had availed CENVAT credit on various capital goods, including popcorn machines, for providing taxable output services outside multiplexes. During an audit, it was discovered that the respondent had availed credit on machines not eligible as capital goods. The respondent agreed to the audit objection, reversed the credit, and discharged the interest liability. The adjudicating authority dropped the penalty proceedings initiated by Revenue.

The Revenue contended that penalty should have been imposed, even though the amount was paid before the show-cause notice was issued. The respondent argued that the penalty proceedings were correctly dropped, citing a decision of the High Court of Karnataka. The Tribunal found that the respondent had reversed the credit under audit instructions and discharged the interest liability, indicating a bonafide belief in availing the credit. The Tribunal held that the respondent could have believed the credit was available, especially since they were discharging service tax liability under specific categories.

The Tribunal noted that Section 73(3) of the Finance Act, 1994, was attracted to the issue, and relied on the High Court decision to support its findings. It emphasized that the respondent's actions were in good faith and that the appeal lacked merit. Therefore, the Tribunal upheld the impugned order as correct and legal, rejecting the appeal from Revenue.