2018 (12) TMI 1295 - AT - Service Tax

Penalty u/s 78 - reversal of CENVAT Credit wrongly availed - no suppression of facts - applicability of Section 73(3) of the Finance Act - Held that - After the audit raised the objection, the appellant reconciled his accounts and paid the service tax along with interest much before the issuance of the show-cause notice. Assessee has also accepted that the CENVAT credit was wrongly taken on account of clerical mistakes committed by the officers who were handling Service Tax matters and the Finance Manager of the unit who was handling the service tax matter had also resigned. The SCN was issued merely on audit objections and in view of the various decisions, no suppression can be alleged merely on audit objections. Appeal allowed - decided in favor of appellant.

Issues:
- Imposition of penalty under Section 78 of the Finance Act, 1994
- Availment of CENVAT credit in contravention of rules
- Non-payment of service tax on certain services
- Allegations of suppression of facts with intent to evade tax
- Preclusion of show-cause notice issuance under Section 73(3) of the Finance Act

Imposition of Penalty under Section 78:
The appeal challenged an order imposing a penalty of ?1,27,80,168 on the appellant under Section 78 of the Finance Act, 1994. The penalty was based on the appellant's availing of CENVAT credit in contravention of the rules, specifically Rule 6(3) of the CENVAT Credit Rules, 2004. The appellant had availed credit exceeding twenty percent of the amount of Service Tax payable on taxable output services, leading to a demand for ?85,85,898 along with interest. However, the appellant reconciled accounts, paid the demanded amount along with interest before the show-cause notice was issued, citing Section 73(3) of the Finance Act.

Availment of CENVAT Credit and Non-Payment of Service Tax:
The appellant was registered for various taxable services and had availed the benefit of abatement under Notification No. 1/2006 dated 01.03.2006. However, it was observed that the appellant had availed CENVAT credit and utilized it for payment of Service Tax, rendering them ineligible for the abatement. The appellant had also not maintained separate records for CENVAT credit utilization, leading to demands for unpaid Service Tax on various services, including rent and commission income. The appellant rectified the errors, paid the demanded amounts along with interest, and claimed the benefit of Section 73(3) of the Finance Act, precluding the issuance of a show-cause notice.

Allegations of Suppression of Facts:
The Department alleged suppression of facts by the appellant with intent to evade tax, as the discrepancies were detected during an audit. However, the appellant contended that the errors were due to clerical mistakes by former officers handling tax matters, and upon discovery, they voluntarily reconciled accounts and paid the outstanding amounts along with interest. Citing judicial precedents, the appellant argued that payment of service tax and interest before the issuance of a show-cause notice under Section 73(3) barred the Department from penalizing them for alleged suppression.

Preclusion of Show-Cause Notice Issuance under Section 73(3):
The appellant relied on legal precedents to support their claim that under Section 73(3) of the Finance Act, once the service tax along with interest is paid before the notice is served, the Department is precluded from issuing a show-cause notice. The appellant's proactive approach in rectifying errors and settling dues before the notice was issued was considered by the Tribunal. Citing relevant case laws, including a decision by the Hon'ble Delhi High Court, the Tribunal found in favor of the appellant, setting aside the penalty imposed under Section 78 of the Finance Act, 1994.

This comprehensive analysis of the judgment highlights the issues involved, the legal arguments presented, and the Tribunal's decision based on the interpretation of relevant legal provisions and precedents.

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