No Allegation indicating CENVAT Credit Availment w/o Service Tax Payment under RCM: CESTAT relieves Hyundai of Rs. 63 Lakh Penalty [Read Order]

The Customs, Excise And Service Tax Appellate Tribunal ( CESTAT ), Chennai recently quashed a penalty of Rs.63 Lakhs against Hyundai Engineering, levied on the availment of Central Value Added Tax ( CENVAT ) credit without due payment of the service tax under Reverse Charge Basis.

The decision was given by CESTAT while adjudicating a Service Tax Appeal filed by Hyundai Engineering India Pvt. Ltd. against the Order of the Commissioner of Goods and Services Tax (GST) and Central Excise, Chennai North Commissionerate, imposing a penalty of Rs.63,58,370/- under Rule 15 of CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.

During Audit of the Appellant’s records, the Comptroller and Auditor General of India - Central Revenue Audit (CAG CERA) found that the Appellants had availed and utilized CENVAT credit on the service tax paid by them on import of services under reverse charge basis, before the actual payment of service tax.

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The Department observed that the Appellant had committed statutory defaults and issued Show-Cause Notice proposing to recover CENVAT Credit wrongly availed along with interest and penalty. The Additional Commissioner further confirmed the service tax and interest therein, along with a penalty of Rs.63,58,370/- according to Rule 15(4) of CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.

The present Appeal has been instituted against the Order-in-Appeal by the Commissioner of GST & Central Excise (Appeals-II). Counsel for the Appellant, S. Durairaj submitted that the Appellant had no malafide intention in availing CENVAT credit not available to them, even adducing that the applicable interest had been paid by the Appellant prior to the issuance of the Show-Cause Notice.

CESTAT sought to determine whether the Assessee had, with malafide intention, utilized CENVAT Credit during April and November 2007 prior to the payment of service tax on the import of services and whether mandatory penalty is to be imposed on the Assessee in this regard.

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The two-member Bench of CESTAT, Chennai comprising P. Dinesha, Judicial Member and Vasa Seshagiri Rao, Technical Member observed that the CENVAT Credits were availed on 30.04.2007 and 30.11.2007 and the service tax payments were made through reverse charge basis on 03.05.2007 and 06.12.2007 respectively, accounting for a mere delay 3 days in April 2007 and 7 days in November 2007.

The Bench referred to the decision of CESTAT, Ahmedabad in M & B Engineering Limited Vs. Commissioner of Central Excise (2024) wherein it was held that “when the duty and interest are paid by the party during the course of the Audit, the assessee could not be further faulted with for its conduct to penalise them. Payment of duty with interest remove the stains of delay from the conduct of the party and bring back sparkles of bona fide conduct.”

CESTAT acceded to the claims of the Assessee and held that there is no allegation of fraud or suppression leveled against the Assessee, and in such event set aside the imposition of mandatory penalty under Rule 15(4) of CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 while upholding the payment of the tax and interest by the Assessee.

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