No penalty imposable if assessee has deposited service tax along with interest before issuance of SCN.

PJ/Case Law/2013-14/1973

Case:-KANDLA EARTH MOVERS VersusCOMMISSIONER OF CENTRAL EXCISE, RAJKOT

Citation:-2013 (30) S.T.R. 622 (Tri. – Ahmd.)

Brief facts:-During the course of audit of the records of the appellants, it was found that the appellants had taken credit of additional duty of customs revisable under Sec. 3(5) of the Customs Tariff Act, 1985 and utilized the same for payment of service tax for output services. Availment of credit utilization happened in the year 2007-08 and audit of the records was conducted in April, 2011. Thereafter show-cause notice was issued proposing recovery of the credit wrongly availed with interest and imposition of penalty. In the meantime, appellants paid service tax and interest. In the appeal, appellant is not contesting the liability of service tax and interest, but only contesting the imposition of penalty.

Appellant’s contention:-The ld. Counsel on behalf of the appellants submitted that in this case the appellants had paid service tax availed by them with interest on 6-9-2011 and on finding that there was some mistake in calculating the interest; they paid the balance amount in November, 2011.The ld. Counsel submitted that the show-cause notice was not received by them before making the payment. It was further submitted that service tax liability with interest had been discharged before receipt of show-cause notice and therefore the appellant is squarely covered by provisions of Sec. 73(3) of the Finance Act, 1994, which provides that in case the assessee pays full amount of tax with interest, no show cause notice shall be issued if there is no suppression or misdeclaration. He further submits that in this case, there was no intention to evade or avail wrong credit, but it was a bona fide mistake on the part of the clerk who was looking after the work. This submission is supported by the fact that before receipt of show-cause notice, appellants had paid service tax and interest and once such amount is paid, proper action is to be taken to check the correctness of the amount paid and inform them about the same for which period of one year as provided in the statutory provision. Therefore, as soon as they were informed, the interest was paid and balance amount was also paid in November, 2011. He submits that in view of the facts, appellants paid the money without challenging the same even though the audit party had pointed out the availment of credit before more than one year and appellants could have challenged the demand on the ground of limitation, appellants did not want to challenge denial of credit on technical ground to avoid discharging the liability of service tax and therefore paid Cenvat credit of Rs. 2, 09,475/- with interest of Rs. 1,47,000/-. He also submitted that under these circumstances imposition of penalty is not called for and appellant’s case is covered by Sec. 73 of the Finance Act, 1994.

Respondent’s contention:-The ld. AR submitted that the appellants did not pay full amount before the issue of show-cause notice. The show-cause notice was issued on 2-9-2011 and therefore, penalty has to be upheld.

Reasoning of judgment:-On going through the records and considering the submissions, commissioner found that audit was conducted in April, 2011; appellant paid Cenvat credit taken with interest on 6-9-2011; show-cause notice is dated 2-9-2011; show-cause notice was signed on 4-9-2011. Under these circumstances, claim of the ld. Counsel that payment was made before receipt of show-cause notice can be accepted. Next question that arises is whether intention to evade payment of duty can be sustained and extended period could have been invoked in this case or not. The ld. Counsel submitted that this was a mistake on their part to have availed the credit. The concerned clerk made a mistake and when the audit party found it after four years they have paid the amount voluntarily with interest which is also substantial.
On going through the records, it was found by commissioner that the original authority has sustained the extended period on the ground that the appellant had paid wrongly availed Cenvat credit after issue of show-cause notice only and, therefore, extended period is invocable. The Commissioner (A) has taken the view that the appellant is working under self-assessment scheme and he is bound to be honest in taking credit and discharging liability. Further he observes that the department has reason to believe that the appellant has done this with sole intention to avail undue benefit of Cenvat credit. The submission that appellants had filed return and shown all details of credit had not at all been considered and dealt with. Further, factually also, observations of the original authority that the amount was not paid before issue of show-cause notice which is the sole ground for invoking extended period is also not correct when various dates relevant to the issue are considered. If the appellant had intentionally taken the credit, they need not have paid the amount before the issue of show-cause notice but waited for show-cause notice to be issued and challenged the same on the ground of limitation thereafter. The very fact that the appellant paid the amount before issue of show-cause notice and when it was found that interest liability was not fully discharged, they paid the balance, in commissioner’s opinion, would go in favour of the appellants. Having regard to the facts and circumstances discussed above and after considering the records, it was found that this was not a case for invoking extended period for imposition of penalty. In view of the above discussion, penalty imposed on the appellant is set aside and demand for wrongly availed Cenvat credit with interest is upheld as not challenged.

Decision:- Appeal allowed.

Comment:- The substance of this case is that when it is observed that service tax along with interest has been paid before issuance of SCN and no fraud can be attributed then levy of penalty is not justifiable and is not warranted.

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PJ/Case Law/2013-14/1973

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