2017 (7) TMI 835 - AT - Central Excise

Tribunal rules in favor of appellant on Service Tax credit issue, overturning penalties.

The Tribunal allowed the appeal, finding in favor of the appellant on various grounds including irregular availing of Service Tax credit, non-reversal of ... CENVAT credit - job-work - denial on three grounds namely that the same has been availed on invalid documents i.e. xerox copies of invoice and secondly non-receipt of goods sent for job work within 180 days and thirdly non-reversal of Cenvat credit on the provision made for obsolete inventory? - Held that: - the appellant has proved on record that he has rightly taken the Cenvat credit on the xerox copies of the invoice and with regard to non-receipt of goods sent for job work within 180 days, he has reversed the credit on the basis of audit objections - once the appellant has reversed the Cenvat credit on being pointed out by the audit then the department should not have issued the show-cause notice, the department has not brought any material on record to show that there was fraud, willful suppression and collusion and suppression of facts with intent to evade payment of duty. The impugned order is not sustainable in law in so far the imposition of penalties and interest are concerned - appeal allowed - decided partly in favor of appellant. Issues Involved:- Irregular availing of Service Tax credit- Non-reversal of Cenvat credit on non-receipt of goods for job work within 180 days- Non-reversal of Cenvat credit on obsolete inventory- Imposition of penalty under Rule 15(2) of CCR read with Section 11 AC of the Central Excise Act, 1944Analysis:Irregular Availing of Service Tax Credit:The appellant, engaged in manufacturing filters falling under Chapter sub-heading 8421 of the Central Excise Tariff Act, was found to have irregularly availed Service Tax credit of Rs. 15,277 based on invalid documents. The appellant contested this observation, arguing that Rule 9 of the Cenvat Credit Rules does not mandate the production of original invoices for availing credit. The appellant cited various decisions in support of their argument. The Tribunal found that the appellant had produced original/duplicate copies of invoices subsequently, rendering the denial of Cenvat credit on this ground invalid.Non-Reversal of Cenvat Credit on Non-Receipt of Goods for Job Work:Regarding the non-reversal of Cenvat credit amounting to Rs. 28,417 due to non-receipt of goods sent for job work within 180 days, the appellant had reversed the credit upon audit objections. The Tribunal noted that the appellant had complied with the audit findings promptly, even though the goods were showing as outstanding in the books. It was emphasized that Cenvat credit cannot be denied when there is no dispute regarding the receipt, consumption, and proper accounting of inputs by the appellant.Non-Reversal of Cenvat Credit on Obsolete Inventory:The appellant had not reversed Cenvat credit of Rs. 74,531 on provisions made for obsolete inventory. The appellant maintained a centralized financial accounts system and had made provisions for obsolete inventory due to technological changes. Upon scrutiny, the appellant agreed with the audit contention and reversed the Cenvat credit as required by the Cenvat Credit Rules. The Tribunal found that once the appellant had reversed the entire amount and informed the department, there was no basis for imposing penalties under Section 11AC of the Central Excise Act.Imposition of Penalty:The Tribunal held that the department had not established fraud, willful suppression, collusion, or intent to evade duty payment by the appellant. Citing a judgment of the Karnataka High Court, the Tribunal concluded that the imposition of penalties and interest was not sustainable in law. Consequently, the Tribunal partly allowed the appeal, setting aside the interest and penalty demands on the appellant.This detailed analysis of the judgment highlights the key issues involved, the arguments presented by the parties, and the Tribunal's findings and conclusions on each issue, ensuring a comprehensive understanding of the legal aspects addressed in the case.