2021 (11) TMI 781 - AT - Central Excise

CENVAT Credit - short payment of service tax - erroneous availment of CENVAT Credit - suppression of facts or not - extended period of limitation - penalty - HELD THAT - Apparently and admittedly out of the total demand of ₹ 11,64,424/- major amount of ₹ 6,89,256/- pertaining to the alleged excess availment of input service tax credit has already been held not assessable by both the adjudicating authorities below. The remaining amount of ₹ 4,75,168/- pertaining to the alleged irregular availment of inputs service tax credit taken on any irregular service (₹ 2,20,969/-) and alleged irregular availment of inputs service tax credit taken on common inputs service ₹ 2,54,199/- was reversed in August, 2016 itself immediately after the audit team raised the objection. Also, it is admitted fact that appellant carried much more balance in their CENVAT credit account when they reversed the aforesaid amount, due to which the authorities below have accepted that there is no liability of the appellant to pay interest thereupon. Whether the case in hand was merely a case of wrong apportionment of credit between the appellants both units, a bonafide clerical error or it was a case of intentional malafide intention to evade payment of duty? - HELD THAT - Though the amount was not proportionately bifurcated between both the units of the appellants but simultaneously it is an admitted fact that the amount of ₹ 2,54,199/- was not further distributed to the second unit of the appellant despite being claimed by the first unit. So the eligibility of claim of credit of ₹ 8,28,621/- stand admitted - deficiency was made good even before the issue of impugned show cause notice dated 28.7.2013 and the credit were properly being recorded in their ER 1 returns at the time of taking the same and also at the time of reversing the same. Once those have been properly recorded in the books of accounts of the appellants, the allegation of intentional evasion remains only assumption having no legs to stand upon. Extended period of limitation - penalty - suppression of facts or not - HELD THAT - When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. Above all, suppression of facts is clearly qualified by word wilful in the section. Hence, presence of mensrea to evade duty has to be there. From the facts, it is found that since there has been prompt reversal by the appellant that too of a such amount which was meant for the appellants own both units, however was utilised only by one unit. Hence allegation of wilful mis-statement with an intent to evade payment rather not at all justified - Though the adjudicating authority below had been right while dropping the demand on the same ground by holding it to be mere clerical error, they have definitely got wrong while still imposing penalty. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Irregular availment of CENVAT Credit on input services and subsequent penalty imposition.

Analysis:
The case involved the appellant, engaged in the manufacture of bulk drugs, availing CENVAT Credit on inputs, capital goods, and input services for payment of duty on final products. During an audit, it was found that the appellant had irregularly availed input service tax credit, leading to a demand of recovery of ?11,64,361. The Original Adjudicating Authority partially accepted the proposal, resulting in a demand of ?4,75,168 along with a penalty of the same amount. The appellant challenged this decision before the Tribunal.

The appellant argued that the irregularity was due to wrong credit operation between their units, not intentional evasion. They highlighted that the reversed amount was due to a clerical error in credit allocation between units and not a deliberate attempt to evade tax. The appellant also contended that the extended period of limitation was wrongly invoked. They cited various case laws to support their arguments for setting aside the penalty.

On the other hand, the Department contended that the appellant irregularly availed the credit and only reversed it after being pointed out, indicating awareness of the error. They argued that such non-disclosure amounts to wilful suppression, attracting penalties under Rule 15(2) of CCR, 2004 and Section 11AC of the Central Excise Act, 1944.

After hearing both parties, the Tribunal observed that a major portion of the demand was already held not assessable, and the remaining amount was reversed promptly by the appellant. The Tribunal found that the error was a result of incorrect credit apportionment between units, not intentional evasion. The Tribunal referred to precedents where reversal before the issue of a show cause notice barred the extended period of limitation. The Tribunal emphasized that suppression requires a deliberate intent to evade duty, which was not present in this case. Therefore, the penalty imposed was set aside, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the penalty imposition was unjustified due to the absence of intentional evasion. The decision highlighted the importance of prompt rectification of errors and clarified the criteria for invoking the extended period of limitation and penalties in cases of CENVAT Credit irregularities.