Penalty for CENVAT credit use in service tax payment set aside where tax and interest were later paid in cash.

Penalty for discharging service tax on Goods Transport Agency services through CENVAT credit was not justified where the tax and interest were later paid in cash after the error was pointed out. No material showed deliberate defiance of law or contumacious conduct, and the settled legal position on such utilisation further weakened the basis for penal action. The penalty was set aside.

---

---

Issues: Whether penalty was sustainable for discharging service tax on Goods Transport Agency services by utilising CENVAT credit, when the tax and interest were later paid in cash after the irregularity was pointed out.

Analysis: The liability was initially discharged through the CENVAT credit account, but the amount was subsequently paid through TR-6 challan along with interest after audit pointed out the error. No material was found to show deliberate defiance of law or any contumacious conduct. The legal position on utilisation of CENVAT credit for such payment had also become settled, which diluted the basis for invoking penal consequences.

Conclusion: Penalty was not justified and was set aside.

---