2018 (7) TMI 679 - AT - Central Excise

Penalty - CENVAT Credit - input services - the services used for repair and maintenance of the factory premises - case of Revenue is that the services provided were in the nature of construction service, and that the same was not used by the appellant directly or in relation to the manufacture of the final products and clearance of the final products up to the place of removal and credit cannot be allowed - Held that - The assessee had not disclosed the fact of its availing Cenvat credit of service tax paid on construction services provided to the department, which came to light only on due verification of accounts by the departmental audit. This observation, clearly, not supported by any evidence. It is therefore a clear case of bonafide mistake in availing Cenvat credit for which no penalty is exigible. Decided in favor of assessee.

Summary

Issues:
1. Disallowance of Cenvat credit for the period from February 2014 to April 2014.
2. Appropriation of reversed amount in Cenvat account towards the disallowed credit.
3. Demand for interest under Section 11AA of the CEA, 1944.
4. Imposition of penalty under Section 11AC of the CEA, 1944.

Analysis:
1. The appellant availed Cenvat credit on input services used for repair and maintenance of the factory premises. The Revenue alleged that the services were construction services not directly related to manufacturing final products. The SCN proposed disallowance of credit, appropriation of reversed amount, interest demand, and penalty imposition. The appellant responded citing bonafide belief, timely reversal, and compliance with departmental requirements.

2. The Order-in-Original found the credit wrongly taken on ineligible services but noted immediate reversal upon notification, indicating bonafide intentions. The adjudicating authority considered 'modernization, renovation, or repairs of a factory' as qualifying input services under Rule 2(l) of the CCR, 2004. Citing Supreme Court precedents, the authority concluded no penalty for a bonafide mistake, thus refraining from imposing a penalty.

3. The Revenue appealed the penalty dropping, leading to the Commissioner (Appeals) setting aside the original order. The Commissioner held that non-disclosure of availed credit on construction services warranted penalty under Section 11AC, citing Supreme Court decisions supporting automatic penalty imposition.

4. The appellant challenged the penalty levy, arguing the absence of evidence supporting non-disclosure and emphasizing the bonafide nature of the mistake. The Tribunal noted the two possible views on the issue, upheld the bonafide nature of the mistake, and relied on Supreme Court decisions to conclude that no penalty was justified. The penalty was set aside, restoring the original order.

In conclusion, the Tribunal upheld the appellant's position, emphasizing the bonafide nature of the mistake in availing Cenvat credit and the absence of evidence supporting non-disclosure. The penalty was deemed unwarranted, aligning with Supreme Court precedents on penalties for bonafide mistakes in availing credits.