2017 (10) TMI 82 - HC - Central Excise

Penalty - input credit on parts used for construction of fixed and semifixed structures - Held that - When the assessee bonafide carrying a belief which cannot be stated to be wholly untenable that cenvat credit on such inputs was available, claimed the same with full knowledge of the department, merely because eventually such credit was disallowed, would not give rise to penalty proceedings - appeal dismissed - decided against Revenue.

Summary

Issues:
- Appeal against the judgment of CESTAT regarding the deletion of penalty
- Whether the Tribunal erred in setting aside the penalty as unwarranted
- Dispute over cenvat credit on inputs used in construction of towers and structures
- Interpretation of rule 2(k) of CENVAT Credit Rules, 2004
- Comparison of judgments from Gujarat High Court and Bombay High Court
- Justification for penalty imposition under rule 15 of CENVAT Credit Rules

Analysis:
The High Court heard an appeal against the CESTAT judgment regarding the deletion of a penalty imposed by the adjudicating authority. The case revolved around the respondent assessee, engaged in providing cellular telephone services, availing cenvat credit on excise duty paid inputs used in constructing towers and structures. The department contended that such items did not qualify as goods under rule 2(k) of CENVAT Credit Rules, 2004, as they were immovable structures. The Tribunal upheld the department's stance, citing a Bombay High Court judgment and disregarding a Gujarat High Court decision. However, the Tribunal found the penalty unjustified, considering it a disputable legal issue and deleted it.

The Court examined the debatable nature of the claim for input credit on construction parts, eventually resolved by a Bombay High Court judgment. Despite the differing views between courts, the Tribunal's decision denying cenvat credits to the assessee was challenged by telecom companies, with pending Tax Appeals. The Court emphasized that penalty imposition under rule 15 of CENVAT Credit Rules required a wrongful claim or lack of reasonable steps to ensure duty payment. A bonafide belief in the availability of cenvat credit, even if later disallowed, did not automatically warrant a penalty. The rule mandated penalties only for entirely wrong or malicious claims, not for genuine, reasonable beliefs.

Ultimately, the Court dismissed the Tax Appeal, upholding the Tribunal's decision to delete the penalty. The judgment highlighted the importance of a reasonable belief in claiming cenvat credit and clarified that penalties should not be imposed solely based on credit disallowance, emphasizing the need for wrongful or malicious intent for penalty imposition under rule 15.