Appellate tribunal overturns penalty under Section 78, citing voluntary rectification and lack of show-cause notice.

The appellate tribunal set aside the revisionary authority's order, allowing the appeal and granting relief as per law. The tribunal held that the penalty imposed under Section 78 of the Finance Act could not be sustained as the appellants voluntarily rectified the mistake of availing double benefits, and the department failed to issue a show-cause notice to deny the benefit under Notification No. 01/2006 ST.

---

---

Issues:
Appeal against Order-in-Revision passed by Commissioner regarding availing of service tax credit and abatement under Notification No. 01/2006 ST.

Analysis:
The appellants, a provider of taxable services, availed credit of service tax paid on "input services" and also benefited from the abatement of 40% under Notification No. 01/2006 ST. However, they failed to fulfill the condition of not availing CENVAT credit on the "input services." The department conducted an audit, and the appellants voluntarily paid back the wrongly taken credit along with interest. A show-cause notice was issued, and the original authority confirmed the demand without imposing penalties. The Commissioner, under Section 84 of the Finance Act, proposed revision and imposed a penalty under Section 78 of the Finance Act.

The appellant argued that they were availing the credit even before the issuance of Notification No. 01/2006 ST and promptly rectified the mistake upon realization. They contended that there was no irregularity in availing CENVAT credit and that the penalty imposed by the revisionary authority was unwarranted as the original show-cause notice did not mention the wrong availment of the notification's benefit. The appellant emphasized that the proper course of action for the department would have been to issue a show-cause notice for denying the benefit of the notification.

The Commissioner, represented by the SDR, supported the findings and reasoning behind imposing the penalty under Section 78 of the Finance Act. However, the appellate tribunal, after considering the submissions and records, noted that while there was a case of availing double benefit, the benefit that should have been denied was the one under Notification No. 01/2006 ST due to the violation of its conditions. As the department did not issue a show-cause notice to deny the benefit of the exemption under the notification, the act of voluntarily reversing the credit taken along with interest by the appellants was deemed acceptable by the original authority. Consequently, the tribunal held that the penalty imposed under Section 78 could not be sustained in the circumstances of the case.

Therefore, the tribunal set aside the order of the revisionary authority, allowed the appeal, and granted consequential relief as per law.

---