2022 (12) TMI 235 - AT - Service Tax

Levy of equal amount of penalty u/s 78 of FA - availment of irregular CENVAT Credit was accepted by the appellant, the CENVAT Credit was reversed by them and the amount of interest was paid for such delayed reversal of credit - suppression of facts or not - HELD THAT - In this case, both taking of CENVAT Credit and reversal thereof was within the knowledge of the Department, which is evident from the audit objection report issued to the appellant. It is an admitted fact on record that both the Service Tax along with interest was deposited by the appellant in the year 2016 and thereafter, show-cause proceedings were initiated against the appellant on 17.07.2018. Both the adjudication as well as the first appellate authority have not specifically discussed with the issue of involvement of the appellant in the fraudulent activities, concerning fraud, collusion, suppression of facts etc., with intent to evade payment of Service Tax. The proviso clause appended to Section 78 ibid cannot be invoked in the case of the appellant for imposition of penalty - Even otherwise also, the benefit provided under sub-section (3) of Section 73 ibid should be available to the appellant inasmuch as before issuance of show-cause notice, the appellant had deposited the disputed amount of Service Tax along with interest and also informed the Department regarding such payment. Hence, as per the mandates under statute, no action was required to be taken for imposition of penalty. Hence, on this count also, appellant s case succeed on merit. Penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Disputed availment and reversal of CENVAT Credit
- Imposition of penalty under Section 78(1) of the Finance Act, 1994
- Benefit of sub-section (3) of Section 73 of Finance Act, 1994

Analysis:

Issue 1: Disputed availment and reversal of CENVAT Credit
The appellant had mistakenly paid Service Tax on export services under the Reverse Charge Mechanism (RCM) and availed CENVAT Credit. The Department disputed the CENVAT Credit, leading to show cause proceedings. The appellant reversed the CENVAT Credit and paid interest for the delayed reversal. The Tribunal noted that both the taking and reversal of CENVAT Credit were known to the Department through an audit objection report. It was observed that there was no evidence of fraudulent activities by the appellant to evade Service Tax payment. The Tribunal concluded that the proviso clause under Section 78 of the Finance Act, 1994, could not be invoked for imposing a penalty in this case.

Issue 2: Imposition of penalty under Section 78(1) of the Finance Act, 1994
The appellant argued that there was no element of fraud, collusion, or suppression in the availment and reversal of CENVAT Credit, hence Section 78(1) should not be applied for penalty imposition. The Tribunal agreed with the appellant, stating that since the appellant had paid the disputed Service Tax amount along with interest before the show cause notice was issued, the benefit of sub-section (3) of Section 73 of the Finance Act, 1994, should apply. The Tribunal held that no penalty should be imposed based on the circumstances and statutory requirements.

Issue 3: Benefit of sub-section (3) of Section 73 of Finance Act, 1994
The appellant contended that since the disputed amount was paid along with interest before the show cause notice, no penalty should be imposed. The Tribunal concurred, stating that as per the statute, no action was necessary for penalty imposition in such a scenario. Therefore, the appellant's case succeeded on merit, and the Tribunal allowed the appeal in favor of the appellant by setting aside the impugned order that confirmed the penalty amount.

This judgment highlights the importance of considering the circumstances of CENVAT Credit availment, reversal, and penalty imposition in cases where there is no evidence of fraudulent intent. It also emphasizes the statutory provisions regarding the payment of disputed amounts before show cause notices are issued to determine the applicability of penalties under the Finance Act, 1994.