2018 (6) TMI 115 - AT - Central Excise

Penalty u/r 15(2) read with Section 11AC of the CEA 1944 - reversal of CENVAT Credit of various input services which were considered as ineligible to be availed - whether the first appellate authority was correct in setting aside the penalty imposed by the adjudicating authority on the respondent herein? - Held that - It is undisputed that the respondent-assessee has paid all the demand with interest before the issuance of SCN on being pointed out by Revenue authorities. It is also undisputed that the records of the respondent-assessee s were audited by the audit party regularly during the period in question - if the respondent-assessee discharged the demands as pointed out by the authorities during verification of the records with interest, provisions of section 11A(2B) would get attracted and SCN should not have been issued to respondent-assessee. The first appellate authority was correct in setting aside the penalty imposed and the impugned order does not require any interference - appeal dismissed - decided against Revenue.

Issues:
1. Setting aside of penalty imposed by adjudicating authority on respondent.
2. Interpretation of provisions of Rule 15(2) and Section 11AC of the Central Excise Act, 1944.
3. Application of Section 11A(2B) in the case.
4. Allegation of suppression of facts with intention to evade duty.
5. Impact of audit party's review of records on the case.
6. Precedents related to audit party's review and imposition of penalties.

Analysis:

The appeals before the Appellate Tribunal CESTAT MUMBAI were directed against orders-in-appeal dated 25.05.2017. Despite the absence of any representative from the respondent, the appeals were taken up for disposal due to the narrow compass of the issue. The primary issue under consideration was whether the first appellate authority was correct in setting aside the penalty imposed by the adjudicating authority on the respondent. The Revenue authorities had issued a show-cause notice to the respondent for demanding and reversal of CENVAT Credit of various input services deemed ineligible. The respondent reversed the entire CENVAT Credit and interest during the proceedings. The adjudicating authority confirmed the demand with interest and imposed penalties under Rule 15(2) read with Section 11AC of the Central Excise Act, 1944. The first appellate authority upheld the demand with interest but set aside the penalties, citing lack of intention to evade duty due to an audit of the respondent's records by the audit party during the relevant period.

The learned D.R. argued that the demands were raised invoking the extended period due to suppression of facts with intention to evade duty, supported by the respondent's admission through payment of demand with interest. The D.R. contended that the first appellate authority erred in setting aside the penalties. Reference was made to a judgment of the Hon’ble Bombay High Court to emphasize that an audit does not absolve the party from scrutiny of all records. Upon review, the Tribunal noted that the respondent had paid the demand with interest before the show-cause notice was issued, and their records were regularly audited during the relevant period. The Tribunal found that the provisions of Section 11A(2B) should have been considered, and the show-cause notice should not have been issued. The Tribunal agreed with the first appellate authority's decision, citing a similar ruling by the Hon’ble Karnataka High Court regarding the unsustainability of demands based on the extended period when records were audited. Consequently, the Tribunal rejected the appeals, affirming the correctness and legality of the first appellate authority's decision to set aside the penalties.

In conclusion, the Tribunal's analysis focused on the application of relevant provisions of the Central Excise Act, the impact of the audit party's review of records on allegations of suppression, and the interpretation of precedents regarding penalties imposed in similar circumstances. The decision highlighted the importance of considering all relevant legal provisions and precedents to determine the appropriateness of penalties in cases involving alleged evasion of duty.

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