2019 (2) TMI 1481 - AT - Central Excise

Imposition of penalty - invocation of provisions of Rule 15(2) of the Rules read with Section 11AC of the Act - Held that - It is an admitted fact on record that based on the Books of Accounts maintained by the appellant the Central Excise Officers observed that the discrepancies regarding availment of irregular credit. It is not the case of Revenue that the appellant had suppressed such facts regarding availment of CENVAT Credit which were made known to the department through external sources or otherwise - Admittedly there is no element of suppression mis-statement fraud etc on the part of the appellant in defrauding the Government revenue. Therefore the department has wrongly invoked the provisions of Section 11A(4) of the Act for issuance of show-cause notice and confirmation of the adjudged demand - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Availment of ineligible CENVAT Credit on input services
- Demand and recovery of service tax credit
- Imposition of penalty under Rule 15(2) of the Rules read with Section 11AC of the Act

Analysis:

Issue 1: Availment of ineligible CENVAT Credit on input services
The appellant, engaged in the manufacture of paints and varnishes, availed CENVAT Credit on inputs, capital goods, and service tax on input services. During an audit, it was observed that the appellant had availed ineligible CENVAT Credit on input services. The appellant reversed the amount of credit and informed the department about the inadvertent error. The department issued a show-cause notice for recovery of the service tax credit. The original authority confirmed the demand, and the Commissioner (Appeals) upheld the decision. The appellant contended that there was no suppression of facts and that the reversal was done promptly upon detection of the mistake.

Issue 2: Demand and recovery of service tax credit
The department issued a show-cause notice demanding recovery of the service tax credit amount. The appellant argued that it had already reversed a significant portion of the amount before the notice was issued and settled the remaining liability before the adjudication order. The appellant maintained that the statutory provisions were misinterpreted in confirming the penalty amount. The Tribunal noted that the appellant did not contest the CENVAT demand and interest but challenged the imposition of penalty under Rule 15(2) of the Rules read with Section 11AC of the Act.

Issue 3: Imposition of penalty under Rule 15(2) of the Rules read with Section 11AC of the Act
The Tribunal found that there was no suppression, misstatement, or fraud on the part of the appellant in defrauding the government revenue. The demand was based on discrepancies observed in the appellant's books of accounts, and there was no evidence of intentional wrongdoing. The Tribunal held that the department wrongly invoked the provisions of Section 11A(4) of the Act for the show-cause notice and confirmation of the demand. Consequently, the Tribunal set aside the penalty imposed, allowing the appeal in favor of the appellant on the issue of penalty only.

In conclusion, the Tribunal disposed of the appeal by setting aside the penalty, emphasizing that there was no merit in upholding the penalty imposed on the appellant. The judgment clarified the misinterpretation of statutory provisions and the absence of fraudulent intent on the part of the appellant in the case.