2015 (12) TMI 752 - AT - Service Tax

Tribunal overturns penalty for tax credit error, citing prompt rectification and lack of malicious intent.

The Tribunal set aside the penalty imposed on the appellant for mistakenly availing service tax credit for the construction of their Maharashtra factory. ... Imposition of penalty - reversal of cenvat credit before utilization - Construction service - Held that:- Admittedly the appellant reversed the credit immediately on being pointed out by the Audit. There could be some confusion on their part as regards the availability of the credit inasmuch as it was their own unit which was being constructed in Maharashtra and all the accounts were being maintained at their Unit in Hyderabad. Further, the appellant had not utilized the credit and the same was paid back to the Revenue immediately on being pointed out by the audit, along with interest. The above two decisions referred to and relied upon by the learned advocate are holding that in such a situation penal provisions would not get attracted. In view of the above decisions, I set aside the penalty imposed upon the appellant and allow the appeal to that extent. - Decided in favour of assessee. Issues:Challenge to imposition of penalty.Analysis:The appellant, engaged in the manufacture of rock drilling tools, had a Unit in Hyderabad and was constructing another factory in Maharashtra. They availed services for the construction of the Maharashtra factory and paid service tax on those services from their Hyderabad Unit. The appellant claimed credit for the service tax paid on these services in their statutory records and returns. However, during a factory audit, it was discovered that the appellant was not entitled to avail this credit. The appellant accepted the error and promptly repaid the amount along with interest. Subsequently, proceedings were initiated against them, leading to the imposition of a penalty of 100% along with demand and interest.The appellant contended that they believed in good faith that as the Maharashtra unit was their sister concern and all accounts were maintained in Hyderabad, they were entitled to avail the credit. They argued that the credit was mistakenly availed based on this belief and that there was no malicious intent. The appellant also highlighted that the credit remained unused and cited precedents where penalties were not imposed under similar circumstances. The Revenue, represented by the learned A.R., supported the lower authorities' findings.Upon review, the Tribunal acknowledged that the appellant promptly reversed the credit upon audit notification. Considering the confusion regarding credit availability due to the interconnection between the Hyderabad and Maharashtra units, and the fact that the credit remained unused and was repaid with interest, the Tribunal referred to legal precedents where penalties were not imposed in comparable situations. Relying on these precedents, the Tribunal set aside the penalty imposed on the appellant, thereby allowing the appeal in this regard.In conclusion, the Tribunal found in favor of the appellant, setting aside the penalty imposed on them for mistakenly availing service tax credit for the construction of their Maharashtra factory. The Tribunal's decision was based on the appellant's prompt rectification of the error, lack of malicious intent, and the repayment of the credit along with interest.