Penalty exposure for short-paid service tax and irregular CENVAT credit survives later payment and reversal.

Penalties under section 76 of the Finance Act, 1994 and rule 15(3) of the CENVAT Credit Rules, 2004 were treated as sustainable where service tax had been short-paid and credit had been utilised beyond the available balance. Payment of the shortfall after the notice and reversal of irregular credit before adjudication did not wipe out the default. The facts were taken to indicate deliberate delay and irregular credit utilisation, so the penalty provisions were applied and the challenge to penalties failed.

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Issues: Whether penalties under section 76 of the Finance Act, 1994 and rule 15(3) of the CENVAT Credit Rules, 2004 were justified despite payment of the short-paid service tax and reversal of the irregularly availed credit before adjudication.

Analysis: The liability arose from short-payment of service tax and utilisation of credit beyond the available balance. The subsequent repayment of the irregular credit before the show-cause notice and payment of the tax after the notice did not erase the default. The conduct was found to justify the inference of deliberate delay and irregular credit utilisation, and the imposition of penalties was held to be warranted.

Conclusion: The penalties were upheld and the challenge to them failed.

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