The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Chennai has reduced the penalty imposed on M/s. Natesan Synchrocones Pvt. Ltd. for wrongful availing of Central Value Added Tax ( CENVAT ) credit. The decision was based on the finding that the appellant had reversed the incorrectly availed credit along with interest before the issuance of the Show Cause Notice ( SCN ), indicating no intention to evade duty.
The case arose when an audit conducted by the Department of Goods and Services Tax ( GST ) & Central Excise identified that the appellant had wrongly claimed CENVAT credit of Rs.7,57,347/- during the period from 31st March 2012 to 28th February 2013. The credit was subsequently utilised for the payment of duty. Upon discovering the error, the GST & Central Excise Department issued an SCN demanding reversal of the wrongly availed credit, along with interest and penalties.
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In the order passed by the original authority, the appellant was asked to pay the wrongly availed credit of Rs.7,57,347 with interest of Rs.12,410 and was penalised under Rule 15(2) of the CENVAT Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944. Further, the original authority imposed an additional penalty for non-payment of duty for goods cleared in July 2012. However, in appeal, the Commissioner (Appeals) reduced the penalty but upheld the demand for the wrongly availed credit.
The appellant, represented by Shri R. Parthasarathy argued that the credit was erroneously availed due to a clerical error and had been duly reversed along with interest before the issuance of the SCN.
They further contended that the reversal of the credit occurred 30 months before the SCN, and since no malafide intent or suppression of facts was involved, the penalty should not have been imposed.
The appellant referred to several case laws, including Premier Polytronics Pvt. Ltd. Vs CCE, Coimbatore and Tata Advanced Materials Ltd. Vs CCE & ST Blr-1, to support their claim that no penalty should apply when credits are reversed voluntarily before the SCN is issued.
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The respondent revenue, Commissioner of GST & Central Excise represented by Shri N. Satyanarayanan upheld the findings of the Commissioner (Appeals) and supported the imposition of the penalty.
The CESTAT observed that while the appellant had violated the statutory provisions by availing the wrong credit, there was no intent to evade duty. It noted that the appellant had taken prompt corrective action by reversing the credit and paying the interest before the SCN was issued. The bench also emphasised that penalties should not be automatic but should be imposed based on the nature of the violation and the intent behind it.
In result, the single-member bench of Shri M. Ajit Kumar ( Technical Member ) reduced the penalty to that prescribed under Section 11A(6) of the Central Excise Act, 1944, which allows for a penalty calculated at 1% of the duty per month, subject to the condition that the duty was paid along with interest before the issue of the SCN.
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The ruling highlights the principle that penalties should be proportional to the violation, and in cases where no intent to evade tax is proved, the penalty should not be excessive. The appeal was thus partly allowed, with the appellant receiving a reduced penalty and consequential relief, if any, as per law.
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