2020 (2) TMI 184 - AT - Central Excise

CENVAT Credit - duty paying invoices - the service tax paid voluntarily without raising any supplementary invoices - Rule 9(1) (bb) of Cenvat Credit Rules, 2004 - revenue neutrality - extended period of limitation - HELD THAT - The provisions of Rule 9(1)(bb) of the Cenvat Credit Rules, 2004 is not applicable to the facts of the case as the appellant has not availed credit on supplementary invoices but on the basis of delayed payment of service tax and the same cannot be the basis to deny the credit by invoking the provisions of Rule 9(1)(bb). Further the delayed payment of service tax voluntarily does not amount to suppression of fact with intent to evade payment of tax and hence denial of credit by invoking Rule 9(1)(bb) is not tenable in law. Revenue Neutrality - HELD THAT - The entire exercise of payment of service tax and availment of credit has resulted into revenue neutral situation - further, once the payment of service tax and availment of credit resulted in revenue neutral situation, then the exception created by Rule 9(1) (bb) of Cenvat Credit Rules is not applicable to the facts of the present case. Extended period of limitation - HELD THAT - Once the appellant has paid the service tax voluntarily and informed the Department accordingly, then denial of credit on the ground of suppression of fact by invoking longer period of limitation cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appeal against rejection of appeal and refund of pre-deposit
- Interpretation of Rule 9(1)(bb) of Cenvat Credit Rules, 2004
- Application of penalty under Rule 15(2) read with Section 11AC(1)(c) of Central Excise Act, 1944
- Principles of natural justice regarding show-cause notice issuance
- Benefit of reduced penalty under Section 11AC(1)(b) of Central Excise Act, 1944

Interpretation of Rule 9(1)(bb) of Cenvat Credit Rules, 2004:
The appellant availed cenvat credit on services provided by Manpower Recruitment Supply Agency and Security Agency but later realized the mistake and voluntarily reversed the credit. The Department issued a show-cause notice alleging ineligibility under Rule 9(1)(bb). The Tribunal found that the provision was not applicable as the credit was not based on supplementary invoices but on delayed service tax payment. It held that delayed payment voluntarily does not constitute suppression of fact to evade tax, citing relevant case laws. The Tribunal concluded that the denial of credit under Rule 9(1)(bb) was not legally justified.

Application of Penalty under Rule 15(2) read with Section 11AC(1)(c) of Central Excise Act, 1944:
The Department imposed penalties under Rule 15(2) for alleged suppression of material facts. However, the Tribunal found that the appellant's voluntary payment and disclosure did not amount to suppression. It noted that the payment resulted in a revenue-neutral situation, making the penalty imposition unjustified. The Tribunal referenced precedents to support its stance that voluntary payments do not constitute suppression, ultimately setting aside the penalty.

Principles of Natural Justice Regarding Show-Cause Notice Issuance:
In the case of the refund of a pre-deposit, the Tribunal observed that the adjudication order was passed without issuing a show-cause notice, violating principles of natural justice. Citing relevant legal decisions, the Tribunal held that the absence of a show-cause notice deprived the appellant of a fair opportunity to present their case. Consequently, the Tribunal set aside the order rejecting the refund, emphasizing the importance of procedural fairness.

Benefit of Reduced Penalty under Section 11AC(1)(b) of Central Excise Act, 1944:
Regarding the benefit of a reduced penalty, the Tribunal noted that compliance with the Assistant Commissioner's order was a prerequisite for availing the reduced penalty. Since the appellant did not deposit the reduced penalty within the stipulated time, the Tribunal concluded that the benefit of the reduced penalty was not applicable. This decision was based on the specific provisions of Section 11AC(1)(b) of the Central Excise Act, 1944.

In conclusion, the Tribunal allowed both appeals, setting aside the impugned orders. It found the denial of credit and imposition of penalties unjustified, emphasizing voluntary payments and lack of suppression of facts. The Tribunal also highlighted procedural irregularities in the adjudication process, underscoring the importance of adherence to principles of natural justice. The appellant was granted relief, including the refund of the pre-deposit amount, based on the Tribunal's comprehensive analysis and legal interpretations.