2018 (12) TMI 343 - AT - Service Tax

Penalty u/s 78(1) of the Finance Act, 1994 read with Rule 15(3) of the Cenvat Credit Rules 2004 - incorrectly availed CENVAT Credit - suppression of material fact - EA audit-2000 was conducted where credit was denied - Held that - Admittedly there is no mechanism available for determination of admissibility of cenvat credit in the self assessment era for which EA audit 2000 procedure has assumed its importance. Statutory audit procedure - Held that - It cannot be said that only because audit party had found non-observance of partial reverse charge mechanism procedure in respect of certain services, without any reference to the categorising of service provider, appellant is to be tested for suppression etc. Time Limitation - Held that - The audit is a process which is carried on upwards from the last financial year audited till the last completed financial year preceding the date of audit which is contrary to the provision of Section 73(1) whereby if any fraud collusion, misstatement or suppression is noticed by the department, while processing a return or investigating a firm, the respondent department can go up to five years and serve show-cause to justify tax liability - In the instant case, show-cause was issued on 03.02.2017 calling for imposition of penalty under Section 78 for irregularity found in the financial year 2012-15. It is not understood as to what irregularity was noticed by the respondent department between 01.04.2015 to 03.02.2017, comprising of a period of 23 months to invoke extended period jurisdiction and go back to financial year starting from March 2015 to April 2012. The irregularity as found in EA audit vis a vis prompt payment of service tax and subsequent payment of penalty in conformity to Section 78 (B), the confirmation of penalty under Section 78 is uncalled for - appeal allowed - decided in favor of appellant.

Summary

Issues:
Penalty imposed under Section 78(1) of the Finance Act, 1994 read with Rule 15(3) of the Cenvat Credit Rules 2004 for incorrectly availing cenvat credit.

Analysis:
The appellant was penalized for incorrectly availing cenvat credit, leading to two appeals challenging the penalty imposed by the first appellate authority and the Commissioner. The audit revealed inadmissible credit on services like securities, vehicle repairs, and mobile phone bills, along with non-payment of full invoice amounts. The appellant proactively reversed the cenvat credit, paid the service tax liability, and informed the authorities. However, a show-cause notice was issued, questioning the payments and imposing a penalty. The appellant argued that the credits were mistakenly availed, promptly rectified the situation, and highlighted being a major taxpayer. Legal references were made to support the appellant's case, emphasizing lack of fraudulent intent. The appellant sought relief under relevant sections of the Finance Act and cited case laws to set aside the penalty.

The appellant's counsel argued against the penalty, emphasizing the appellant's responsibility for verifying cenvat credit eligibility. The Commissioner upheld the penalty order, citing a Supreme Court judgment. The Tribunal reviewed the case records and legal references presented by both sides. The absence of a mechanism for cenvat credit determination in self-assessment was noted, with the audit process playing a crucial role. The purpose and procedures of EA and CERA audits were discussed, highlighting the participatory nature of audits and the responsibility of assesses. The Tribunal questioned the irregularity notice timing and the intention to suppress tax liability, citing relevant legal precedents.

The Tribunal referenced a Supreme Court judgment to emphasize that non-payment of duties does not necessarily indicate collusion or suppression. Considering the irregularity found during the audit, the prompt payment of service tax, and penalty, the Tribunal concluded that confirming the penalty was unwarranted. The appeal was allowed, setting aside the Commissioner's order and the penalty imposed under Section 78.

In conclusion, the Tribunal's detailed analysis focused on the audit process, appellant's actions, legal precedents, and the lack of fraudulent intent. The decision to set aside the penalty was based on the appellant's proactive rectification of the situation and compliance with tax liabilities, aligning with legal principles and precedents cited during the proceedings.