2017 (12) TMI 592 - AT - Central Excise

Penalty u/s 11AC - CENVAT credit - trading activity - whether the appellant is required to comply with the provision of Rule 6(3) by making payment at the rate 5% of the value of trading activity being exempted service? - Held that - there is ambiguity on the issue there was no intent to evade duty - as per the fact of the case no malafide established on the part of the appellant therefore ingredients required for invocation of Section 11AC are absent - appeal dismissed - decided against Revenue.

Summary

Issues involved: Interpretation of Rule 6(3) regarding payment compliance, imposition of penalty under Section 11AC, ambiguity in Cenvat Credit Rules, waiver of penalty under Rule 15(2) of Cenvat Credit Rules.

Analysis:
1. The main issue in this case was whether the appellant was required to comply with Rule 6(3) by making a payment at the rate of 5% of the value of trading activity as an exempted service. The Adjudicating Authority confirmed the demand under Rule 6(3)(b) and imposed a penalty under Section 11AC equal to the demand amount. The Commissioner (Appeals) upheld the demand but set aside the penalty under Section 11AC, instead imposing a penalty under Rule 15(1) of Cenvat Credit Rules. The Revenue, being dissatisfied with dropping the penalty under Section 11AC, filed an appeal challenging the Order-in-Appeal.

2. The Revenue argued that the appellant had availed Cenvat credit on common input services used in the manufacture of dutiable goods and trading activities, which were neither dutiable nor taxable. The Revenue contended that the appellant should have complied with Rule 6(3) and that the penalty under Section 11AC was correctly imposed due to malafide intentions on the part of the appellant.

3. On the other hand, the appellant's counsel argued that the 5% demand under Rule 6(3) was in relation to trading activities that were not exempted goods or services. The ambiguity arose from the interpretation of the Cenvat Credit Rules, particularly Rule 2(e), which was later amended to include trading activities in exempted services. The appellant claimed that they could not pay the amount due to this ambiguity but eventually paid the entire demand along with interest, demonstrating no malafide intentions.

4. The Member(Judicial) carefully considered the submissions and records. The Commissioner (Appeals) had found that there was no intent to evade duty, especially considering the ambiguity in Rule 2(e) and the subsequent amendment. The Member(Judicial) agreed that the charge of 'intent' could not be leveled against the appellant and found no malafide established. Consequently, the penalty under Section 11AC was set aside. The Member(Judicial) upheld the Order-in-Appeal, dismissing the Revenue's appeals based on the clear findings and absence of malafide intent on the part of the appellant.