2025 (3) TMI 904 - AT - Service Tax

Appellant's penalties set aside after voluntary payment before show cause notice under Section 11A(2) and 73(3)

M/s Zumax Equipments Pvt. Ltd. Versus Commissioner of Central Excise & CGST, Greater Noida

CESTAT Allahabad allowed the appeal in part. The appellant had paid irregularly availed CENVAT credit and short-paid service tax during audit before show ... Wrong availment of CENVAT Credit - short payment of service tax at the time of audit - lack of evidences - levy of penalties - levy of late fine - invocation of extended period of limitation - penalties - HELD THAT:- It is found that the appellant had paid the amounts towards the irregularly availed CENVAT Credit and Service Tax short paid by them on being pointed out during the audit and much before the issuance of show cause notice, the matter in respect of the said demands should have been closed in terms of Section 11 A (2) of the Central Excise Act, 1944 or Section 73 (3) of the Finance Act, 1994. Section 11 A (2) of the Central Excise Act, 1944 or Section 73 (3) of the Finance Act, 1994 clearly provide that appellant could have paid the amounts short paid by him either on his own ascertainment or on being pointed out by the department. Undisputedly appellant has paid the amounts on being pointed out by the audit. That being so the proceedings for the recovery of the said amounts by issuing show cause notice under Section 11A of the Central Excise Act, 1944 or Section 73 of Finance Act, 1994 for the recovery of the amounts already deposited are bad in law and the penalties imposed equivalent to those amounts cannot be justified. Demand of interest - HELD THAT:- There is no clarity about the interest payment for the delay in payment of taxes/ duty. Appellant has claimed that they had paid the interest also which should have been apportioned against the demand of interest. However they have not produced any evidence in respect of the payment of interest. Time of ten days allowed on the date of hearing to the counsel to produce the details and evidence of payment of interest. However even after more than three months from the date of hearing nothing has been produced before me. Thus there are strong reasons to reject the claim made by the appellant towards the payment of interest. Accordingly the demand of interest upheld by the impugned order is again confirmed. Levy of late fee - HELD THAT:- Appellant has not challenged the late fee levied on the delay filing of their returns by them. The demand for late fee is also upheld. Conclusion - i) The denial of CENVAT credit was upheld due to a lack of evidence from the appellant. ii) The imposition of penalties was set aside due to the appellant's prior payment of duty and interest. iii) The demand for late fees and service tax under RCM was confirmed. iv) The invocation of the extended period was deemed appropriate. v) The demand for interest was confirmed due to the appellant's failure to provide evidence of payment. The impugned order is modified to the extent of setting aside the penalties equivalent to irregularly availed cenvat credit and service tax short paid by the appellant - Appeal allowed in part. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include: Whether the denial of CENVAT credit of Rs. 2,55,917/- was justified under the provisions of the Central Excise Act, 1944 and CENVAT Credit Rules, 2004. Whether the imposition of penalties under Section 11AC of the Central Excise Act, 1944 and Section 78 of the Finance Act, 1994 was justified given the appellant's payment before the issuance of the show cause notice. Whether the demand for late fees due to delayed filing of returns and service tax under the Reverse Charge Mechanism (RCM) was valid. Whether the extended period for demand under Section 11A of the Central Excise Act, 1944 and Section 73 of the Finance Act, 1994 was applicable. Whether the interest on delayed payments was appropriately confirmed and whether the appellant's claim of having paid the interest was valid.ISSUE-WISE DETAILED ANALYSISDenial of CENVAT CreditThe relevant legal framework includes Section 11A of the Central Excise Act, 1944 and Rule 14 of the CENVAT Credit Rules, 2004. The Court found that the appellant did not provide evidence that the items in question were used in the manufacture of kitchen equipment or parts thereof. Therefore, the denial of CENVAT credit was upheld due to a lack of plausible explanation and acceptable evidence.Imposition of PenaltiesThe penalties were imposed under Section 11AC of the Central Excise Act, 1944 and Section 78 of the Finance Act, 1994. The appellant argued that penalties should not be imposed as they paid the duty and interest before the issuance of the show cause notice. The Court, however, noted that the appellant did not voluntarily disclose the discrepancies, which were only discovered during an audit. The Court held that the invocation of the extended period and the imposition of penalties were legal and proper, as the appellant's actions constituted suppression of facts with intent to evade payment of duty/tax.Demand for Late Fees and Service Tax under RCMThe Court upheld the imposition of late fees due to the appellant's failure to challenge this aspect. Regarding the service tax under RCM, the appellant failed to provide evidence that the service providers were exempt or had discharged the service tax. Consequently, the demand for service tax was confirmed.Application of Extended PeriodThe extended period for demand was considered under Section 11A of the Central Excise Act, 1944 and Section 73 of the Finance Act, 1994. The Court found that the appellant's failure to disclose the discrepancies constituted suppression of facts, justifying the invocation of the extended period.Interest on Delayed PaymentsThe Court noted that interest is a natural corollary to the confirmation of demand. Although the appellant claimed to have paid the interest, they failed to provide evidence of such payment. As a result, the demand for interest was confirmed.SIGNIFICANT HOLDINGSThe Court held that the penalties equivalent to the irregularly availed CENVAT credit and service tax short paid by the appellant were unjustified, given that the appellant had paid the amounts before the issuance of the show cause notice. The Court modified the impugned order to set aside these penalties.Core Principles Established Payment of duty and interest before the issuance of a show cause notice can preclude the imposition of penalties under certain statutory provisions. Failure to disclose discrepancies voluntarily can justify the invocation of the extended period for demand and the imposition of penalties. Interest on delayed payments is confirmed unless evidence of payment is provided.Final Determinations on Each Issue The denial of CENVAT credit was upheld due to a lack of evidence from the appellant. The imposition of penalties was set aside due to the appellant's prior payment of duty and interest. The demand for late fees and service tax under RCM was confirmed. The invocation of the extended period was deemed appropriate. The demand for interest was confirmed due to the appellant's failure to provide evidence of payment.The appeal was partly allowed, modifying the impugned order to the extent of setting aside the penalties equivalent to the irregularly availed CENVAT credit and service tax short paid by the appellant.