Tribunal Overturns Penalty on Motor Vehicle Service Provider for Mistaken Cenvat Credit Use; Finds No Malintent.

The CESTAT Allahabad ruled in favor of the appellant, a motor vehicle and business auxiliary service provider, who had mistakenly taken Cenvat credit on common input services. Due to a law change, trading was exempted as a service, leading to a failure to reverse the credit as required by Rule 6(3). Although the appellant rectified the error and paid interest, the Commissioner (Appeals) upheld a penalty. The Tribunal, recognizing the breach as venial and without contumacious conduct, set aside the penalties and allowed the appeals, granting the appellant consequential relief.

---

---

Issues involved: Cenvat credit on common input services in trading business, compliance with Rule 6(3), penalty imposition, change in law affecting service classification.

Summary:
The Appellate Tribunal CESTAT ALLAHABAD, presided over by HON'BLE MR. ANIL CHOUDHARY, considered the case where the appellant, engaged in motor vehicle and business auxiliary service, had taken cenvat credit on common input services due to their trading business in automobiles. Following a change in the law exempting trading as a service, the appellant inadvertently failed to reverse proportionate cenvat credit as required by Rule 6(3). Upon being alerted by the Revenue, the appellant rectified the error by reversing the appropriate credit and paying the prescribed interest. The Commissioner (Appeals) set aside the demand but upheld the penalty, noting the breach of law despite compliance with Rule 6(3).

The appellant argued that the penalty should be set aside due to the change in law not being adequately notified by the department, leading to a venial breach without contumacious conduct. Reference was made to a Division Bench ruling in Hindustan Antibiotics Ltd. v/s Commissioner of C. EX., Pune 2016 (42) S.T.R. 387 (Tri.-Mumbai) to support the argument.

After considering the arguments, the Tribunal found it to be a case of venial breach without contumacious conduct on the part of the appellant. Consequently, the penalties were set aside, and the appeals were allowed, entitling the appellants to consequential relief as per the law. The order was dictated and pronounced in open court.

---