2019 (2) TMI 594 - AT - Service Tax

Imposition of penalty - availment of entire CENVAT credit accumulated on nil duty payable products and exempted services rendered - non-maintenance of separate records - Rule 6(3) of the CENVAT Credit Rules, 2004 - extended period of limitation - Held that - It cannot be said that appellant had improperly filled up ST-3 returns as NO for availment of exempted services but by no stretch of imagination it would constitute deliberate suppression of material facts for which extended period can be invoked . Further such irregularity was pointed out in the audit report during the course of audit on the strength of documents produced by the appellant. It cannot be said that only because audit party had found some credit availed as inadmissible, suppression of fact is made out. It cannot also be established that appellant had any malafide intention to suppress its duty liability from the department - Appeal allowed - decided in favor of appellant.

Summary

Issues: Imposition of penalty for availment of entire CENVAT credit accumulated on nil duty payable products and exempted services without maintaining separate records.

Analysis:
1. The appellant, a Public Limited Company, availed exemption under Notification No. 6/2006-CE for supplies made for setting up water treatment plants and undertook turnkey contracts exempted from Service Tax. An audit revealed the lack of separate accounts for taxable and exempted activities from 2008-09 to 2012-13, violating Rule 6(3) of the CENVAT Credit Rules, 2004. The appellant paid the demanded amount and interest but was penalized 50% of the penalty amounting to ?5,71,654. The appellant contended that the show-cause notice was issued beyond the permissible period, and penalty imposition was unjustified due to a mere interpretation of law issue, citing various legal precedents.

2. The appellant's counsel argued against the penalty, emphasizing no suppression of facts or mis-declaration, invoking Section 78(1) of the Finance Act, 1994. The respondent's Assistant Commissioner contended that the appellant's non-disclosure in ST-3 returns constituted suppression, justifying the extended period invocation. The Tribunal noted discrepancies in the appellant's returns but found no deliberate suppression. The audit process was discussed, highlighting its purpose to ensure tax compliance without establishing malafide intent on the appellant's part.

3. The Tribunal allowed the appeal, setting aside the Commissioner's order, as the appellant's actions did not amount to deliberate suppression of facts warranting the penalty. The judgment was pronounced on 07.02.2019 by the Appellate Tribunal CESTAT MUMBAI, with the order-in-appeal from the Commissioner of CGST AND Central Excise (Appeals), Nashik dated 09.02.2018 being overturned.