2009 (7) TMI 200 - AT - Service Tax

Revenue appeal denied for irregular Cenvat Credit; no penalty without mala fide intent

The appeal filed by the Revenue regarding the irregular availment of Cenvat Credit for service tax paid on repairs and maintenance services was rejected. ... Mandatory penalty - Irregular availment of Cenvat Credit of service tax paid on repairs & maintenance service for maintenance of the air condition machines and water coolers installed in their factory, guest house and residential colony. It was alleged in the show cause notice that such service does not fall within the purview of “input services” as defined under Rule 2(1) of C.C.R., 2004 and so Cenvat credit of service tax paid on the same is not admissible. - Demand was confirmed under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 & penalty was imposed under Rule 15 of the Cenvat Credit Rules, 2004 r/w Section 11AC of the Central Excise Act, 1944. - The appellate authority has hold that no penalty is imposable & alternatively waived penalty under Sec. 80 of the Finance Act, 1994. – Revenue contend that entire issue is governed by the Central Excise Act and Rules made there under, so appellate authority has erroneously applied the provisions of the Section 80 of the Finance Act, 1994 – Wrong provision referred while dropping penalty - there is no ingredient of mala fide intention, suppression, fraud, collusion or willful misdeclaration were established and further if at all I consider the contention of the Revenue, the penalty under Section 11AC is also not be imposable in the absence of mens rea. - the appeal filed by the Revenue is rejected Issues:Irregular availment of Cenvat Credit for service tax paid on repairs & maintenance service.Analysis:The appeal filed by the Revenue concerns the irregular availment of Cenvat Credit of service tax paid on repairs & maintenance services for air condition machines and water coolers in various locations. The Revenue contended that such services do not qualify as 'input services' under Rule 2(1) of C.C.R., 2004, making the Cenvat credit inadmissible. The demand was confirmed under Rule 14 of Cenvat Credit Rules, 2004, and penalty was imposed under Rule 15 of the same rules read with Section 11AC of the Central Excise Act, 1944. The appellate authority, however, held that no penalty could be imposed and alternatively waived the penalty under Sec. 80 of the Finance Act, 1994.The Revenue argued that the appellate authority erred in applying the provisions of the Finance Act, 1994, to the Central Excise Act, 1944, and its rules. They contended that the penalty should have been upheld as per the Central Excise Act and rules. On the other hand, the respondent's counsel emphasized that justice cannot be denied by quoting wrong provisions. They pointed out that there was no mala fide intention found in the respondent's actions regarding the service tax credit on maintenance charges.The Member (J) analyzed the case and found that for the penalty under Section 11AC of the Central Excise Act to be imposed, the mens rea of the assessee must be established. In this instance, there was no evidence of mala fide intention, suppression, fraud, collusion, or willful misdeclaration. Therefore, the penalty under Section 11AC was deemed inapplicable due to the absence of mens rea. The Member (J) acknowledged that while the appellate authority referenced the wrong law in dropping the penalty, it was clear that penalty could not be imposed without establishing mens rea under Section 11AC of the Central Excise Act, 1944.Consequently, the appeal filed by the Revenue was rejected, and the judgment was pronounced in court.