2019 (1) TMI 252 - AT - Service Tax

Penalty - amount of cenvat credit availed has been reversed alongwith the interest even before the issuance of SCN - credit on common input services for exempted as well as taxable services - non-maintenance of separate records - Held that - The demand as was pointed out during the audit was paid alongwith the interest by the appellant, i.e. the cenvat credit availed on its trading activity (the exempted) was reversed alongwith the interest before issuance of the impugned Show Cause Notice. In accordance of Rule 6(3)(b) of CCR. In view of this admitted fact, no penalty can be imposed under Section 11AC of the Excise Act and under Rule 15 of the CCR Rules. This Tribunal in the case of CCE, Panchkula Vs. Krishna Cylinder 2015 (1) TMI 1197 - CESTAT NEW DELHI has held that in accordance of the provisions of Section 73(3) of the Finance Act, the Show Cause Notice was not required to be issued when service tax along with interest has been paid by the assessee before the issuance of the Show Cause Notice. Further, in the Show Cause Notice there were no specific allegations of non-payment due to fraud, collusion, wilful mis-statement or suppression of material facts, it was held that no penalty can be imposed on such assessee - The facts in the present case are identical. Penalty cannot be imposed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Imposition of penalty for availing cenvat credit without maintaining separate accounts for exempted services
- Applicability of penalty under Section 76, 77, and 78 of the Finance Act
- Justification of penalty imposition by the Commissioner(Appeals)

Analysis:

The case involved a dispute regarding the imposition of a penalty on the appellant for availing cenvat credit without maintaining separate accounts for exempted services. The Department alleged that the appellant had not disclosed the correct taxable value and had not paid service tax amounting to ?42,65,412, equivalent to 6% on the value of exempted services. The Show Cause Notice was issued, proposing recovery of the amount along with interest and penalties. The initial recovery was confirmed by the Joint Commissioner, leading to an appeal before the Commissioner(Appeals) who set aside the proposed recovery but imposed a penalty of ?2 lakhs on the appellant.

During the appeal hearing, the appellant argued that since they had reversed the availed cenvat credit and deposited the same along with interest before the issuance of the Show Cause Notice, there was no need for the imposition of a penalty. The appellant contended that penalties under Section 76, 77, and 78 of the Finance Act were not sustainable in view of Section 85 of the Finance Act, and thus, the penalty should be set aside.

On the other hand, the Department justified the penalty imposition, stating that it was proportionate to the amount of credit availed by the appellant, regardless of the reversal of credit. The Commissioner(Appeals) held that there was still an error on the part of the appellant, justifying the penalty imposition.

After hearing both parties, the Tribunal deliberated on whether a penalty could be imposed when the availed cenvat credit had been reversed along with interest before the issuance of the Show Cause Notice. The Tribunal noted that the appellant had not maintained separate accounts for inputs for dutiable and exempted final products as required by Rule 6(2) of Cenvat Credit Rules. However, the appellant had the option to either pay 6% of the value of exempted goods or pay proportionate cenvat credit attributable to exempted final products. Since the appellant did not opt for either option, a recovery of ?42,65,412 was proposed.

Despite the demand being paid along with interest before the Show Cause Notice, the Tribunal held that no penalty could be imposed under Section 11AC of the Excise Act and Rule 15 of the CCR Rules. The Tribunal cited a High Court decision and Section 80(2) of the Finance Act to support its decision that no penalty should be imposed when the tax or wrongly availed credit is paid along with interest before the issuance of the Show Cause Notice. Additionally, the Tribunal referred to a previous case to emphasize that no penalty should be imposed when service tax, along with interest, is paid before the Show Cause Notice is issued. As a result, the Tribunal set aside the order under challenge, allowing the appeal in favor of the appellant.