2013 (3) TMI 4 - AT - Central Excise

Tribunal Upholds Denial of Cenvat Credit, Penalties Set Aside

The Tribunal rejected the appellant's appeal seeking cenvat credit on service tax paid to commission agents, upholding the denial of credit based on High ... Eligibility of cenvat credit on service tax paid on commission to commission agents - precedential effect of High Court judgment - interest liability on wrongly availed cenvat credit - bonafide belief as defence to penalty - imposition and enhancement of penalty under Rule 15 of the Cenvat Credit Rules read with Section 11AC of the Central Excise ActEligibility of cenvat credit on service tax paid on commission to commission agents - precedential effect of High Court judgment - Cenvat credit of service tax paid on commission to commission agents is not eligible. - HELD THAT: - The Tribunal applied the decision of the Hon'ble High Court of Gujarat in Cadila Healthcare Ltd., holding that service tax paid on commission to commission agents is ineligible for cenvat credit. On the merits, the Tribunal found that the appellant's claim to such credit cannot be sustained in view of that authoritative ruling and accordingly rejected the appellant's plea for entitlement to the credit. [Paras 8]Appeal rejected to the extent of entitlement to cenvat credit; credit held ineligible.Interest liability on wrongly availed cenvat credit - Assessee liable to pay interest on the amount of cenvat credit availed and utilised during the material period. - HELD THAT: - Having held the cenvat credit to be ineligible, the Tribunal found that the appellant is liable to pay interest on the improperly availed and utilised credit for the relevant period. The appeal against the demand of interest was therefore rejected. [Paras 9]Appeal rejected insofar as interest liability is concerned; interest payable on the disallowed credit.Bonafide belief as defence to penalty - imposition and enhancement of penalty under Rule 15 of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act - Penalties equivalent to the amount of credit under Rule 15 read with Section 11AC are set aside; Revenue's appeal for enhancement rejected. - HELD THAT: - Although penalties were imposed by the lower authorities and the department sought enhancement to 100%, the Tribunal accepted the appellant's contention that, during the relevant period, there existed decisions and a bona fide belief supporting the eligibility of such credit. The appellant, a manufacturer who disclosed the credit in regular returns, could have acted under an honest belief as to entitlement; consequently the Tribunal concluded that invocation of the extended penalty provisions was not justified and set aside the equivalent amount of penalty imposed. [Paras 10]Penalties imposed under Rule 15 read with Section 11AC set aside; department's appeal for enhancement of penalty rejected.Final Conclusion: Assessee's appeal allowed in part (penalty set aside) and rejected in part (credit disallowed and interest payable); Revenue's appeal for enhancement of penalty rejected; cross-objection disposed accordingly. Issues involved:Appeal against order extending partial payment of penalty under Section 11AC, denial of cenvat credit on service tax paid to commission agents, imposition of penalty under Cenvat Credit Rules.Analysis:1. The department filed an appeal seeking enhancement of penalty by 100% against the order extending partial payment of penalty under Section 11AC. The appellant's appeal was filed to set aside the order denying cenvat credit on service tax paid to commission agents. Another appeal was filed by the assessee against the appeal filed by the Revenue.2. Despite the appellant's absence, the Tribunal proceeded with the appeal. The appellant had availed cenvat credit on service tax paid to commission agents, which was objected to by the audit party. The adjudicating authority confirmed the reversal of the cenvat credit, imposed interest, and penalty under the Cenvat Credit Rules and Section 11AC of the Central Excise Act. The first appellate authority upheld the decision but reduced the penalty by 25% if paid within 30 days.3. The appellant contended that cenvat credit was eligible based on previous Tribunal decisions and argued against the penalty imposition, stating they had filed returns indicating the credit without objection until the audit party's view differed.4. The Assistant Commissioner argued that a High Court judgment held the service tax on commission paid to agents was not eligible for cenvat credit. The department sought a penalty enhancement due to the appellant's non-disclosure of availed cenvat credit.5. The Tribunal found the High Court's judgment settled the eligibility issue, denying cenvat credit for service tax on commission to agents. The appellant's appeal on this ground was rejected. The appellant was held liable for paying interest on the credit utilized.6. Regarding the penalty, both lower authorities imposed penalties under the Cenvat Credit Rules and Section 11AC. The Tribunal considered the appellant's bonafide belief in availing the credit, given the previous decisions and regular filing of returns. The penalties were set aside, considering the appellant's genuine belief in the credit's eligibility related to their manufacturing business.7. The Tribunal disposed of the appeals by partially allowing the assessee's appeal, rejecting the department's appeal, and addressing the cross objection filed by the assessee. The penalties imposed were set aside based on the appellant's bonafide belief in availing the cenvat credit.This judgment clarifies the eligibility of cenvat credit on service tax paid to commission agents, the imposition of penalties under the Cenvat Credit Rules, and the Tribunal's consideration of the appellant's bonafide belief in availing the credit.