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2019 (9) TMI 73 - AT - Service TaxCENVAT Credit - common input services used for manufacture of dutiable goods and for providing the exempted service - non-maintenance of separate records - Rule 6 of the CENVAT Credit Rules 2004 - Penalty u/s 78 - HELD THAT - The impugned order imposing penalty under Section 78 equal to the proportionate credit is not sustainable in law because of the fact that there was no suppression with intention to evade payment of duty. Further, in the earlier audit for the period August 2009 to July 2014 , the Department did not raise any objection in spite of the fact that the Department was aware of the input credit, which the appellant was availing. It is only during the subsequent audit that this objection was raised and the present show-cause notice was issued. The appellant is entitled to avail the benefit of less penalty provided under Second proviso to Section 78(1) of the Act which he has rightly availed. The order of the Commissioner(Appeals) is contradictory when he says that payment of interest and penalty is found to be correct as per the provisions of Rule 14 of CCR, Section 78 of the Finance Act, 1994 and Rule 15(3) of the CCR and also observed that it needs no interference. But thereafter, he also imposed equal penalty under Section 78 which according to my considered opinion is not sustainable. Further the appellant is entitled to avail the benefit of less penalty provided under Second proviso to Section 78(1) of the Act which he has rightly availed. The order of the Commissioner(Appeals) is contradictory when he says that payment of interest and penalty is found to be correct as per the provisions of Rule 14 of CCR, Section 78 of the Finance Act, 1994 and Rule 15(3) of the CCR and also observed that it needs no interference. But thereafter, he also imposed equal penalty under Section 78 which according to my considered opinion is not sustainable. Appeal allowed - decided in favor of appellant.
Issues:
- Imposition of penalty under Section 78 of the Finance Act, 1994 for non-compliance with Rule 6 of the CENVAT Credit Rules 2004. - Allegation of suppression of facts by the appellant to evade payment of duty. - Applicability of longer period of limitation under proviso to Section 73(1) of the Act. - Correctness of the impugned order passed by the Commissioner(Appeals). Analysis: 1. Imposition of Penalty under Section 78: The appellant, engaged in manufacturing and trading activities, faced a demand notice for payment under Rule 6(3)(i) of the CCR, 2004 due to not maintaining separate inventory for dutiable goods and exempted services. The Commissioner(Appeals) partially allowed the appeal but imposed an equal penalty under Section 78 of the Finance Act, 1994. The appellant argued against the penalty, stating that they had reversed the proportionate credit, paid interest, and penalty within the prescribed time, and there was no willful suppression. The Tribunal held that the penalty equal to the proportionate credit was unsustainable as there was no intent to evade duty, and the appellant had complied with the necessary procedures promptly. 2. Allegation of Suppression of Facts: The appellant contended that the Department had not raised objections during the initial audit period regarding the trading activity, and the subsequent objection and notice alleging suppression were not valid. The Tribunal agreed, noting that the appellant had reversed the credit, paid the penalty, and informed the Department promptly. The Tribunal found no willful suppression and allowed the appeal, emphasizing that the penalty under Section 78 was not justified in this case. 3. Applicability of Longer Period of Limitation: The Commissioner(Appeals) invoked the longer period of limitation under proviso to Section 73(1) of the Act, alleging suppression of facts by the appellant from August 2014 to June 2017. The appellant argued that the Department was aware of the trading activity during the earlier audit period, and the subsequent objection was unjustified. The Tribunal concurred, stating that the penalty under Section 78 was not warranted, considering the appellant's compliance and lack of intent to evade duty. 4. Correctness of the Impugned Order: The Tribunal analyzed the submissions from both sides, reviewed the material on record, and found the impugned order contradictory. While acknowledging the correctness of the appellant's actions in reversing credit and paying penalties, the Commissioner(Appeals) still imposed an equal penalty under Section 78. The Tribunal held that such a penalty was unsustainable due to the absence of willful suppression and the appellant's adherence to the prescribed procedures. Consequently, the Tribunal allowed the appeal and set aside the penalty imposed under Section 78. In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the lack of intent to evade duty, prompt compliance with procedures, and the unjustifiability of the penalty under Section 78 in the absence of suppression of facts.
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