Tribunal overturns penalties for late submission of credit option, citing legislative intent

The Tribunal allowed the appeal, setting aside the demand and penalties imposed on the Appellant for the late submission of the option letter for proportionate reversal of credit under Rule 6(3A) of Cenvat Credit Rules, 2004. The Tribunal held that the demand was not sustainable and referred to previous decisions supporting assesses in similar situations. The Appellant's payments made in compliance with the rules were accepted, and penalties were waived, emphasizing the legislative intent to enable such reversals despite procedural lapses.

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Issues involved:
The issues involved in the judgment are the late submission of option for proportionate reversal of credit under Rule 6(3A) of Cenvat Credit Rules, 2004 and the demand raised by the Department for payment of 5% or 6% of the value of exempted service.

Late Submission of Option:
The Appellant, engaged in manufacturing excisable goods, undertook trading activities as well. After budgetary changes in 2011, trading was classified as 'exempted service' under Cenvat Credit rules. The Appellant exercised the option for proportionate reversal of credit from 01.04.2011 but was alleged to have submitted the option letter belatedly. The Department issued a demand for Rs.2,52,853/- for late submission, which was confirmed by the Lower Authorities.

Legal Arguments:
The Appellant contended that late filing should not hinder their choice, as they had already made a proportionate reversal and paid interest before the issuance of the show-cause notice. They cited case laws to support their position. The Learned AR supported the findings of the Lower Authorities.

Tribunal's Decision:
The Tribunal considered the Appellant's belated submission of the option letter and noted previous Tribunal decisions taking a liberal view on such procedural lapses. Referring to case laws, the Tribunal held that the demand for Rs.2,52,853/- was not sustainable under Rule 6(3)(i). The Tribunal allowed the amounts already reversed by the Appellant and set aside the balance demand, interest, and penalty.

Precedent and Legislative Intent:
The Tribunal highlighted that even before the introduction of Rule 6(3AA), Tribunals had favored allowing assesses to reverse proportionate Cenvat Credit despite late filing. The enactment of Rule 6(3AA) further supported the legislative intent to enable such reversals. Relying on precedent, the Tribunal set aside the demand and penalties, allowing the Appellant's payments made in compliance with Rule 6(3A).

Disposition of the Appeal:
The Tribunal disposed of the appeal by setting aside the demand and penalties, allowing the Appellant's reversed amounts and interest to be appropriated by the Revenue. The penalty for the promptly paid amount was also set aside.

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