2019 (6) TMI 73 - AT - Service Tax

Imposition of penalty - irregularly availed CENVAT Credit reversed before the issuance of show cause notice - intent to evade or not - HELD THAT - In the instant matter since the appellant had sufficient balance in cenvat account therefore it cannot be said that they had utilised the same. It is not disputed that after it was pointed out by the audit party the same was reversed by the appellant immediately without even waiting for the show casue notice, therefore it cannot be said that there was any intention on the part of the appellant to evade payment of tax or that they had utilised the amount credited. It is settled by catena of decisions that wrong availment of cenvat credit but non-utilising the same do not lead to any consequence. In the present case, the Revenue has failed to brought on record any evidence to prove fraud or collusion or wilful suppression on the part of the Appellant and the Appellant by its conduct has proved that that there was no malafide intention on its part and it was only a bonafide error on the part of the Appellant, which was rectified immediately on pointing out by the audit party and therefore in these circumstances no penalty is imposable on the Appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability for penalty under CCR for non-payment of service tax within three months.
2. Applicability of penalty under Section 78 of the Act for failure to pay service tax due to fraud or suppression of facts.

Analysis:

Issue 1: Liability for penalty under CCR for non-payment of service tax within three months:
The Appellant had obtained Service Tax Registration for various services and availed input service tax credit based on invoices from subcontractors. However, they retained 5% of the invoice value and did not pay it to the subcontractors within three months. The department claimed that as per Rule 4(7) of Cenvat Credit Rules, 2004, failure to pay within three months requires the assessee to pay an amount equal to the Cenvat Credit availed. The Appellant reversed the Cenvat credit amount after being pointed out and later received a show cause notice for adjusting the reversed amount towards service tax liability. The Adjudicating Authority confirmed the demand of service tax and imposed penalties, which were partially upheld by the Commissioner (Appeals).

Issue 2: Applicability of penalty under Section 78 of the Act for failure to pay service tax due to fraud or suppression of facts:
The Appellant argued that they had only availed, not utilized, the credit, citing a Tribunal decision in a similar case. They contended that there was no revenue loss to the government, no malafide intention, and that the situation was revenue neutral. The Appellant had reversed the credit immediately upon audit party's pointing out the irregularity. The Tribunal held that for imposing penalty under Rule 15(3) of CCR, 2004 read with Section 78(1) of the Act, there must be suppression of facts with intent to evade payment of duty. As the Appellant had sufficient balance in their Cenvat account, did not utilize the credit, and rectified the error promptly, the penalty was set aside, following precedents and legal principles.

In conclusion, the Tribunal allowed the Appeal, setting aside the penalty imposed on the Appellant under Rule 15(3) of the Cenvat Credit Rules read with Section 78(1) of the Finance Act, 1994, as there was no evidence of fraud or suppression of facts, and the error was rectified promptly.