2021 (4) TMI 349 - AT - Service Tax

Levy of Penalty u/s 78 of FA - CENVAT Credit on disputed services, reversed or not - suppression of material facts or not - it is alleged that but for the audit of records by the Department, the issue relating to wrong availment of service tax credit on services not used for providing output service during the relevant period would have gone unnoticed - HELD THAT - It is not disputed that the appellant reversed the cenvat credit on impugned services on being pointed out by the Department before the issuance of the show-cause notice. Further the appellant has not utilized the said credit and had sufficient balance during the relevant period in their cenvat credit account which was reversed and the Department was informed vide its letter dt. 14/10/2015 regarding the reversal of the said credit. Further the Division Bench of this Tribunal in the case of YCH LOGISTICS (INDIA) PVT. LTD. VERSUS C.C.E C.S.T. -BANGALORE SERVICE TAX- I 2020 (3) TMI 809 - CESTAT BANGALORE has considered the aspect of imposition of penalty under Section 78 and has dropped the penalty after considering the various decisions relied upon by the assessee. The imposition of penalty under Section 78 in the present case is not sustainable - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Penalty imposition under Section 78 of Finance Act, 1994 for wrongly availed service tax credit on services not used for providing output service.

Analysis:
The appellant, registered for Information Technology Software Services, wrongly availed service tax credit on various services not used for output service. The audit revealed the wrongful credit availed, amounting to ?46,14,735, covering different periods and services. The appellant reversed the credit upon audit notification and requested penalty waiver. Despite the reversal, a show-cause notice was issued, leading to penalty imposition under Section 78. The appellant challenged this penalty before the Commissioner(Appeals) and subsequently filed the present appeal.

The appellant argued that the tax was paid before the show-cause notice, demonstrating good faith compliance. They emphasized the lack of evidence of intent to evade tax, citing precedents where penalties were dropped under similar circumstances. The appellant highlighted the reversal of credit upon audit objection as a proactive measure, indicating no suppression of material. Reference was made to the decision in YCH Logistics case and a High Court ruling supporting penalty drop in comparable cases.

The Appellate Tribunal reviewed the submissions and evidence, noting the appellant's prompt reversal of credit upon audit notification. The Tribunal highlighted the appellant's non-utilization of the credit and sufficient balance in the cenvat account during the relevant period. Citing the YCH Logistics case, the Tribunal emphasized Section 73(3) of the Finance Act, which exempts show-cause notice issuance if tax is paid with interest before notice. The Tribunal found no evidence of suppression or concealment by the appellant to evade tax, leading to the conclusion that the penalty imposition under Section 78 was unjustified and legally flawed.

Additionally, the Tribunal referenced a High Court decision upholding the penalty drop in similar circumstances. Following the legal precedents and rationale from prior cases, the Tribunal set aside the impugned order, allowing the appellant's appeal with any consequential relief. The judgment was pronounced on 06/04/2021, favoring the appellant's position and invalidating the penalty under Section 78.

This detailed analysis of the judgment showcases the legal intricacies involved in the penalty imposition for wrongly availed service tax credit, emphasizing compliance, good faith actions, lack of intent to evade tax, and legal precedents supporting penalty drop under comparable circumstances.