No imposition of penalty for apportionment of Central Value Tax: CESTAT

No imposition of penalty for apportionment of Central Value Tax: CESTAT

The Coram of judicial member Rachna Gupta holds the authorities responsible for wrongful punishment

The Hyderabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that penalty cannot be imposed for mere wrong apportionment of Central Value Added Tax (CENVAT) credit between two units, as it was just a 'clerical error'.

The appellant, Synthokem Labs Pvt. Ltd, engaged in the manufacture of bulk drugs, was availing the CENVAT credit on inputs, capital goods and input services. Simultaneously, they utilized the same for payment of duty on their final products.

However, during the audit of records of the appellant, the audit officers noticed that the appellants had short-paid the service tax and had erroneously availed the CENVAT credit.

Thus it was understood that the issue was either merely of the wrong apportionment of credit between the appellants' both units (a bonafide clerical error), or it was a case of intentional malafide to evade payment of duty.

The Coram of the judicial member, Rachna Gupta noted that the amount was not proportionately bifurcated between both the units of the appellants. Yet, the amount was not further distributed to the second unit of the appellant. It happened, despite being claimed by the first unit. So, the eligibility of the claim of the credit stood admitted.

Thus, the tribunal held that there was no intentional evasion, but only an error between the two units of the appellant for availing the credit without bifurcating the same inter se. The deficiency had occurred even before the issue of impugned show cause notice.

Also, the credit was properly being recorded in their returns at the time of receiving and even while reversing it. Once recorded in the accounts books of the appellants, the allegation of intentional evasion was merely an assumption.

Proving the authorities wrong for still imposing the penalty, CESTAT ruled, "When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. Above all, suppression of facts is clearly qualified by the word 'willful' in the Section."