2020 (10) TMI 155 - AT - Central Excise

Availing cenvat credit against pre-deposit - to be considered as 'deposit of Service Tax or not' - amount pre-deposited by the appellant in terms of Section 35F of the Central Excise Act, 1944 pursuant to the stay order - HELD THAT - Rule 3 ibid is the enabling provision, which entitles a manufacturer or a service provider to take Cenvat credit of various duties and service tax mentioned therein. The said rule nowhere prescribes that amount deposited under Section 35F ibid should be considered as either duty or service tax for the purpose of taking the Cenvat benefit. Since, payment made under 35F is not specifically finding any place in Rule 3 ibid, taking of such amount as Cenvat credit is contrary to such statutory provision and hence, denial of Cenvat benefit in the present case by the authorities below is in conformity with the statutory provisions - In view of the fact that Rule 3 of the rules does not consider the amount of pre-deposit as service tax for availment of Cenvat credit by the manufacturer/service provider, taking of such credit by the appellant is not proper and justified. Thus, the service tax demand confirmed by the original authority and upheld in the impugned order cannot be faulted with. The department has invoked the provisions of Section 11AC of the Central Excise Act, 1944 for imposing mandatory penalty on the appellant. Insofar as invocation of the said statutory provision is concerned, the department has to specifically allege and prove with substantial evidence that there is element of fraud, collusion, willful misstatement, suppression of facts etc., with intent to evade payment of central excise duty/service tax. From the averments made in the appeal memorandum as well as the submissions made by the learned Advocate at the time of hearing of appeal, it transpires that the ingredients mentioned in Section 11AC ibid are absent and as such, the provisions of Section 11AC ibid cannot be invoked inasmuch as taking of Cenvat credit of the pre-deposit amount in question by the appellant was not owing to the reason of fraud, collusion, willful misstatement etc. - the availment of credit based on the valid and proper document cannot invite for the penal consequences by reason of fraud, collusion etc., with intent to evade Government revenue. Imposition of penalty under Section 11AC ibid by the department cannot stand for judicial scrutiny - the appeal is partly allowed in favour of the appellant by setting aside the penalty imposed on it under Section 11 AC ibid.

Summary

Issues:
1. Interpretation of whether the amount paid as a pre-deposit under Section 35F pursuant to a stay order should be considered as a "deposit of duty/service tax" for Cenvat credit eligibility.
2. Application of Rule 3 of the Cenvat Credit Rules, 2004 in relation to the pre-deposit made under Section 35F.
3. Invocation of Section 11AC of the Central Excise Act, 1944 for imposing a penalty on the appellant.

Issue 1:
The main issue in this case is whether the amount paid as a pre-deposit under Section 35F pursuant to a stay order should be considered as a "deposit of duty/service tax" for the purpose of availing Cenvat credit. The appellant argued that the pre-deposit should be eligible for Cenvat benefit, relying on a previous Tribunal decision. However, the Revenue contended that Rule 3 of the Cenvat Credit Rules does not include pre-deposits under Section 35F as eligible for credit. The Tribunal analyzed the provisions and held that since Rule 3 does not specifically mention pre-deposits under Section 35F, taking such an amount as Cenvat credit goes against the statutory provision. The Tribunal distinguished the appellant's case from the precedent cited, emphasizing that the pre-deposit in this case was contested and not admitted as "service tax." Consequently, the denial of Cenvat benefit by the authorities was deemed in line with the law.

Issue 2:
Regarding the application of Rule 3 of the Cenvat Credit Rules, 2004 to the pre-deposit made under Section 35F, the Tribunal found that the rule enables manufacturers or service providers to take credit of specified duties and service tax. The Revenue argued that since pre-deposits under Section 35F are not mentioned in Rule 3, availing Cenvat credit on such amounts is not in accordance with the statute. The Tribunal concurred with this view, stating that the absence of specific inclusion of pre-deposits under Section 35F in Rule 3 prohibits their consideration for Cenvat credit. The Tribunal also highlighted that the appellant's belief that the pre-deposit should be credited was not fraudulent, collusive, or willfully misleading, as required for invoking Section 11AC penalties.

Issue 3:
The third issue pertains to the invocation of Section 11AC of the Central Excise Act, 1944 for imposing a penalty on the appellant. The Tribunal noted that for penalties under Section 11AC to apply, there must be evidence of fraud, collusion, willful misstatement, or intent to evade duty or tax. In this case, the Tribunal found no such elements present, as the appellant genuinely believed the pre-deposit was eligible for credit based on valid documents. The Tribunal concluded that the penalty under Section 11AC was not justified and set it aside in favor of the appellant.

In conclusion, the Tribunal partially allowed the appeal by setting aside the penalty imposed under Section 11AC of the Central Excise Act, 1944. The judgment clarified the ineligibility of pre-deposits under Section 35F for Cenvat credit based on Rule 3 of the Cenvat Credit Rules, 2004, and emphasized the absence of fraudulent intent in the appellant's actions.