The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) quashed the penalty imposed on Steel Authority of India Ltd. ( SAIL ), which had mistakenly availed CENVAT credit on the same invoices. It observed voluntarily reversed the credit even before the issuance of a Show Cause Notice and absence of fraudulent intent.
Steel Authority of India Ltd. (SAIL), the appellant, a public sector undertaking engaged in the manufacture of hot-rolled and cold-rolled stainless steel products, availed CENVAT credit on inputs, capital goods, and input services.
During a departmental audit for the period from April 2010 to March 2011, it was discovered that the appellant had mistakenly availed of Rs. 5,37,442 excessive CENVAT credit by taking double credit on the same invoice and claiming credit over the specified invoice value.
The Future of Tax and Finance: Upskill with Us
Upon being informed of this discrepancy, the appellant quickly reversed the credit on October 6 and 12, 2011, before the issuance of a Show Cause Notice (SCN) on November 20, 2013.
The department issued the SCN seeking recovery of the excess credit along with interest and penalties. The adjudicating authority dropped the penalty, citing that SAIL had sufficient credit balance and lacked any intent to evade duties. Despite this, the authority ordered the payment of interest.
On appeal, the Commissioner (Appeals) reduced the penalty to Rs. 2,68,721, which was 50% of the duty amount as per Rule 15(2) of the CENVAT Credit Rules, 2004. Aggrieved by this decision, the appellant approached the CESTAT arguing that penalties under Section 11AC of the Central Excise Act, 1944, required evidence of fraud, suppression, or willful misstatement which were not present in this case.
The Future of Tax and Finance: Upskill with Us
The appellant’s counsel relied on the judgment of the Karnataka High Court in CCE & Service Tax, LTU, Bangalore v. Bill Forge Private Limited [2012 (279) E.L.T. 209 (Kar.)], which held that interest is compensatory and applicable only when duty is unpaid or short-paid.
The revenue counsel countered that the appellant had breached Rules 4 and 9 of the CENVAT Credit Rules, 2004, by availing credit erroneously, and argued that the claim of inadvertent error did not absolve them from liability for interest and penalties.
The single-member bench comprising M. Ajit Kumar (Technical Member) observed that SAIL had reversed the excess credit before the SCN was issued, maintained a sufficient credit balance, and had not utilized the excess credit for the payment of duties.
The Future of Tax and Finance: Upskill with Us
The tribunal observed there was no evidence of suppression, fraud, or willful misstatement to justify the imposition of penalties under Section 11AC of the Central Excise Act, 1944. The tribunal explained that penalties require an intent to evade duties which was absent in this case. The tribunal quashed the interest demand and penalties and allowed the appeal of the appellant.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
