2018 (11) TMI 976 - AT - Service Tax

Interest on CENVAT Credit reversed - case of appellant is that they have had not utilized the same - Held that - The records as verified by the Commissioner put so other wise. The Learned Counsel for the appellant also agrees that the disputed amount had been utilized therefore interest is liable to be paid on the disputed amount. Penalty u/s 78 - Held that - It is not in dispute that the appellant had wrongly availed CENVAT credit and utilized the same and thereby evaded payment of service tax and this was noticed only in audit records by the Departmental Officers therefore penalty is liable to be imposed under Section 78 - however, the quantum of penalty reduced to 50%. Appeal allowed in part.

Summary

Issues:
Irregular availment of CENVAT credit, imposition of penalty under Section 78, disputed amounts of credit, applicability of proviso to Section 78.

Analysis:
The appellant, engaged in providing digitization services, was found to have irregularly availed CENVAT credit and taken an excess amount of credit on certain services during an audit by the department. The show cause notice proposed the recovery of these amounts, along with interest and a penalty under Section 78. The lower authority ordered the recovery of the disputed amounts with interest and imposed a penalty equal to these amounts for the irregular availment of CENVAT credit to evade tax payment. The appellant, admitting the irregularities, had reversed most credits but disputed two amounts. The First Appellate Authority upheld the lower authority's decision, leading to this appeal.

The appellant, through their counsel, argued that their lack of understanding of tax procedures led to the wrongful availment of CENVAT credit on various inputs. They sought to set aside the interest and penalty equal to the demand, emphasizing that they had not disputed the credit recovery. However, they admitted to utilizing the disputed amounts and acknowledged liability for interest. The appellant contended that the irregularities were due to genuine mistakes without any intent to evade tax, requesting the penalty be waived or reduced under the proviso to Section 78.

The Departmental Representative supported the appellant's version and presented a letter from the Central Tax Commissionerate confirming the irregular credit utilization by the appellant. It was established that the appellant had utilized the disputed amounts for tax payments, violating rules and evading duty. The representative argued for the imposition of the penalty under Section 78, albeit acknowledging the applicability of the proviso to reduce the penalty to 50% of the disputed amount due to the irregular credit availed by the appellant being discovered through their own records.

After considering both sides' arguments and reviewing the records, the tribunal acknowledged the irregularities in CENVAT credit availment and utilization by the appellant, leading to tax evasion. While agreeing on the liability for interest, the tribunal reduced the penalty under Section 78 to 50% of the evaded duty amount, in line with the proviso applicable during the relevant period. Consequently, the impugned order was modified to reflect the reduced penalty, and the appeal was disposed of accordingly.