2025 (3) TMI 1137 - AT - Service Tax

Reduction of penalty imposed u/s 78 of FA - Disallowance of CENVAT Credit - extended period of limitation - HELD THAT - Once it was admitted by the learned counsel for the appellant during the course of hearing of the appeal before the Commissioner (Appeals) that the appellant was not disputing the confirmation of demand of service tax amounting to Rs. 1, 07, 52, 629/- it is not open to the appellant to contend in this appeal that confirmation should be set aside as the extended period of limitation could not have been invoked in the facts and circumstances of the case. It is clear from the order passed by the Commissioner (Appeals) that the only submission that was made was that the penalty should be reduced to 50% in view of the provisions of section 78 of the Finance Act. The Commissioner (Appeals) has recorded a categorical finding that the Books of Accounts did not reveal the transactions and it is only the Tally software that was recovered from the premises of the appellant that mentioned the aforesaid amount. There is therefore no error in the finding recorded by the Commissioner (Appeals). Regarding the recovery of CENVAT credit the contention raised on behalf of the appellant that the credit could not have been disallowed under the provisions of the CENVAT Credit Rules 2002 as the CENVAT Credit Rules 2004 were applicable has not been accepted by the Commissioner (Appeals) for the reason that the show cause notice clearly mentions the invocation of rule 14 of the CENVAT Credit Rules 2004 and a mere mention of a wrong rule in the impugned order would have no effect. There is no error in the finding passed by the Commissioner (Appeals). Conclusion - The appellant have not been able to establish that the transactions in respect of which service tax was evaded was duly reflected in the specified books of account such as audited financial statements. The Tally software cannot be considered as a specified record for the purpose of attracting the proviso to Section 78. Appeal dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the appellant is entitled to a reduction of the penalty imposed under Section 78 of the Finance Act, 1994, from 100% to 50% of the service tax liability.

2. Whether the disallowance of CENVAT credit amounting to Rs. 15,89,475/- was justified, particularly in light of the alleged typographical error in the reference to the applicable CENVAT Credit Rules.

ISSUE-WISE DETAILED ANALYSIS

1. Reduction of Penalty under Section 78 of the Finance Act, 1994

Relevant Legal Framework and Precedents: Section 78 of the Finance Act, 1994, stipulates that a penalty equal to 100% of the service tax evaded is imposable. However, a proviso allows for a reduced penalty of 50% if the details of the transactions are recorded in specified records.

Court's Interpretation and Reasoning: The Tribunal found that the appellant did not maintain the requisite records in the specified manner. The appellant's reliance on Tally software was deemed insufficient to qualify for the reduced penalty, as the software does not constitute a specified record under the proviso to Section 78.

Key Evidence and Findings: The Tribunal noted that the appellant's transactions were not reflected in the specified books of account, such as audited financial statements, but were only recorded in the Tally software.

Application of Law to Facts: Given that the appellant could not demonstrate that the transactions were recorded in the specified records, the Tribunal upheld the full penalty as per Section 78.

Treatment of Competing Arguments: The appellant's argument for a reduced penalty was based on the claim that transactions were recorded in their books of accounts. However, the Tribunal found no evidence to support this claim and rejected the plea for penalty reduction.

Conclusions: The Tribunal concluded that the appellant was not entitled to a reduced penalty as the conditions under the proviso to Section 78 were not met.

2. Disallowance of CENVAT Credit

Relevant Legal Framework and Precedents: The CENVAT Credit Rules, 2004, particularly Rule 14, govern the conditions under which CENVAT credit can be availed or disallowed.

Court's Interpretation and Reasoning: The Tribunal addressed the appellant's contention regarding the alleged typographical error in the reference to the CENVAT Credit Rules, 2002, instead of the 2004 Rules. The Tribunal determined that the show cause notice correctly invoked Rule 14 of the 2004 Rules, and the typographical error in the order did not affect the validity of the disallowance.

Key Evidence and Findings: The Tribunal emphasized that the show cause notice explicitly referenced the 2004 Rules, and the appellant's claim of a procedural error was unfounded.

Application of Law to Facts: The Tribunal applied the correct legal framework, affirming the disallowance of CENVAT credit based on the conditions set forth in the relevant notifications and rules.

Treatment of Competing Arguments: The appellant argued that the disallowance was beyond the scope of the show cause notice due to the incorrect rule citation. However, the Tribunal found this argument unpersuasive, given the clear reference to the 2004 Rules in the notice.

Conclusions: The Tribunal upheld the disallowance of CENVAT credit, rejecting the appellant's procedural argument.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Tribunal emphasized, "The appellant have not been able to establish that the transactions in respect of which service tax was evaded was duly reflected in the specified books of account such as audited financial statements. The Tally software cannot be considered as a specified record for the purpose of attracting the proviso to Section 78."

Core Principles Established: The judgment reinforces the principle that for a reduced penalty under Section 78, transactions must be recorded in specified records, and reliance on non-specified records like Tally software is insufficient.

Final Determinations on Each Issue: The Tribunal dismissed the appeal, affirming the full penalty under Section 78 and upholding the disallowance of CENVAT credit under the CENVAT Credit Rules, 2004.

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