Case Law Details
Deendayal Port Authority Through Secretary Vs Union of India & Ors. (Gujarat High Court)
Conclusion: Interest was leviable under section 50 on assessee for wrongly availing Cenvat credit. However, there was no conscious or deliberate wrong doing on part of assessee and as such, the order passed by the adjudicating authority confirming the disallowance of claim of assessee of transitional Cenvat Credit of Rs. 27,78,825/- out of transitional Cenvat credit of Rs.99,46,810/-could not be said to be claim made for a reason on account of fraud or any suppression of fact to evade tax. Therefore, no penalty was leviable under section 122 (2)(b).
Held: Assessee had filed its quarterly returns in Form ST-3 for the period between 01.04.2017 to 30.06.2017. Assessee realized that inadvertently certain invoices pertaining to the said period could not be accounted, therefore, it filed revised return in Form ST-3 on Automation of Central Excise and Service Tax (ACES) portal. Assessee realised that certain more invoices were still not accounted but the online portal did not allow assessee to file the revised return for the second time. Assessee intimated the department about the pending service tax credit. Upon introduction of the CGST Act in 2017, assessee filed Form GST TRAN-1 to avail the transitional Central Value Added Tax Credit of the erstwhile service tax regime in the GST regime including the additional amount of credit amounting to Rs.7,93,66,038/-. Respondent issued a show cause notice intimating assessee had wrongly carried forward ITC to the extent of Rs.99,46,810/- in Form GST TRAN-1. Assessee clarified that Form ST-3 was incorrect as some of the invoices inadvertently remained unaccounted for the said period and the correct amount of credit was carried forward in Form TRAN-1. Respondent issued show cause notice to recover the alleged excess credit of Rs.99,46,810/- under section 74(1) read with section 122(2)(b) of the CGST Act. It was the case of assessee that out of the amount of credit of Rs. 27,78,825/-, credit amounting to Rs.23,96,204/- pertained to the invoices which initially were supposed to be issued under the erstwhile service tax regime and therefore, assessee claimed the same by showing the entire amount in Form GST TRAN-1. However, subsequently invoices of Rs.23,96,204/-were raised by assessee charging GST under the GST regime and accordingly, as the credit was claimed twice, the same was rejected. The remaining credit amounting to Rs.3,19,148/-pertained to Krishi Kalyan Cess which could not have been carried forward into the GST regime and the balance credit of Rs. 63,473/- was rejected due to lack of supporting documentary evidence to substantiate the claim of credit. Assessee therefore, had not pressed the claim of Rs. 27,78,825/- before the appellate authority as well as before this Court as assessee was not aggrieved by the rejection of the credit of Rs. 27,78,825/- as the amount of the said credit was claimed twice. However, assessee was aggrieved by demand of interest of Rs. 24,72,165/- under section 50(3) of the CGST Act and penalty of Rs. 27,78,825/- under section 122(2)(b) of the CGST Act and hence challenge was restricted by assessee to levy of interest and penalty only. Assessee had also remitted the amount towards tax being Rs. 27,78,825/- by Form GST DRC-03 and further to avoid any dispute, assessee had also paid the amount of Rs.24,72,165/- towards interest on the same day. Assessee being aggrieved by the Order-in-original preferred an appeal under section 107 of the CGST Act challenging the levy of interest and penalty. It was held that as per the provisions of section 140 stipulated transitional arrangement for input tax credit, when the Cenvat credit which was carried forward as per the return relating to period ending with day immediately preceding the appointing day i.e. 01.07.2017 furnished by assessee under the existing law, assessee was entitled to take in his Electronic Credit Ledger amount of such Cenvat credit. Therefore, the credit available as per the existing law in form of Cenvat credit or any other input tax credit, would fall within the scope of “input tax credit” under the CGST Act also. Therefore, assessee was liable to pay interest as computed under the provisions of section 50(3) for wrongly availing Cenvat credit and assessee had rightly deposited such amount after the impugned order was passed. Assessee was therefore under bona fide belief that amount of Cenvat credit to the extent of Rs.99,46,810/- was available to be carried forward. Out of the said amount when verification was made by the respondent authority, assessee accepted that Cenvat credit to the extent of Rs.27,78,825/- could not have been carried forwarded and therefore, the provisions of section 122(1)(b) read with section 74(1) could not have been invoked by the adjudicating authority, more particularly, when assessee had not challenged the confirmation of demand of the excess ITC claimed in Form TRAN-I. There was no conscious or deliberate wrong doing on part of assessee and as such, the order passed by the adjudicating authority confirming the disallowance of claim of assessee of transitional Cenvat Credit of Rs. 27,78,825/- out of transitional Cenvat credit of Rs.99,46,810/-could not be said to be claim made for a reason on account of fraud or any suppression of fact to evade tax. Considering the facts of the case, the findings arrived at by both the authorities that assessee deliberately misstated the facts in TRAN-I so as to utilise Cenvat credit in its payment of output GST liability which was found during the verification of TRAN-I could not be the basis for imposition of penalty as it could not be said that there was any intention on part of assessee which was a Government company to evade tax.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned advocate Mr. Sanket Gupta for learned advocate Mr. Anand Nainawati for the petitioner and learned advocate Mr. C.B. Gupta for the respondents.
2. Having regard to the controversy involved in this matter, which is in a narrow compass, with the consent of the learned advocates for the respective parties, the matter is taken up for hearing.
3. Rule returnable forthwith. Learned advocate Mr. C.B. Gupta waives service of notice of rule on behalf of the respondents.
4. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs:
“a. Issue a Writ of Mandamus or any other writ, order or direction to quash and set aside the Impugned Order-in-Appeal No. KCH- EXCUS-000-APP-061-2021-22-GST-ADC dated 14.02.2022 passed by Ld. Commissioner (Appeals), CGST & CE, Rajkot and consequently sanction the refund claim filed by the Petitioner seeking refund of the interest.
b. Issue directions to the Respondents to refund the amount paid by the Petitioner towards the interest (Rs.24,72,165/-) under Section 50 (3) of CGST Act and pre-deposit of Rs. 2,08,412/- mistakenly paid by them towards penalty under Section 122 (2) (b) of CGST Act:
c. Issue a Writ of Certiorari or a Writ in the nature of Mandamus or any other writ, order or direction under Article 226 of the Constitution of India staying the operation and effect of the Impugned Order-in-Appeal No. AHM-EXCUS-002-APP-186 to 188-18-19 dated 19.02.2019 KCH-EXCUS-000-APP-061-2021-22-GST-ADC dated 14.02.2022 passed by Ld. Commissioner (Appeals), CGST & CE, Rajkot, pending the disposal of the present petition;… ”
5. Brief facts of the case are that the petitioner was registered under section 69 of the Finance Act, 1994 having service tax no. AAALK0046NST001 under the category “Port Services”. The petitioner filed its quarterly returns in Form ST-3 for the period between 01.04.2017 to 30.06.2017 on 14.08.2017 as per the applicable provisions and rules.
6. After filing the return in Form ST-3, the petitioner realised that inadvertently certain invoices pertaining to the said period could not be accounted. The petitioner, therefore, filed revised return in Form ST-3 on 17.09.2017 on the Automation of Central Excise and Service Tax (ACES) portal. The petitioner thereafter realised that certain more invoices were still not accounted for and sought to revise the return again. But despite the attempt for revision being made within the statutory time limit of 90 days from the date of original return being filed as per Rule 7B of the CGST Rules, 2017, the online portal did not allow the petitioner to file the revised return for the second time.
7. The petitioner therefore by letter dated 09.11.2017 intimated the department about the pending service tax credit which was not considered in the revised Form ST-3 filed for first quarter of FY 20172018.
8. The petitioner thereafter upon introduction of the CGST Act in 2017, filed Form GST TRAN-1 on 20.12.2017 under section 140 of the CGST Act to avail the transitional Central Value Added Tax Credit of the erstwhile service tax regime in the GST regime including the additional amount of credit amounting to Rs.7,93,66,038/- as indicated in letter dated 09.11.2017.
9. Respondent no.2 issued a show cause notice dated 07.12.2018 intimating the petitioner that the petitioner had wrongly carried forward ITC to the extent of Rs.99,46,810/- in Form GST TRAN-1. The petitioner in the reply dated 27.12.2018 clarified that Form ST-3 was incorrect as some of the invoices inadvertently remained unaccounted for the said period and the correct amount of credit was carried forward in Form TRAN-1.
10. Thereafter respondent no.2 by letter dated 31.12.2018 informed the petitioner that as per section 140 of the CGST Act only portion of Cenvat Credit that is reflected in the closing balance in Form ST-3 can be availed as input tax credit to be carried forward in GST regime.
11. It is the case of the petitioner that respondent no.2 thereafter issued letter dated 27.03.2019 asking the petitioner for reversal/payment of differential amount of credit of Rs.99,46,810/-. The petitioner by letter dated 03.04.2019 contended that entire amount of credit declared in Form GST TRAN-1 is required to be carried forward as alleged excess credit pertained to the invoices which could not be declared due to restrictions over second revision of the Form ST-3 for the last quarter of FY 2017-2018.
12. It appears that thereafter show cause notice dated 25.04.2019 was issued to recover the alleged excess credit of Rs.99,46,810/- under section 74(1) read with section 122(2)(b) of the CGST Act.
13. Being aggrieved, the petitioner preferred Special Civil Application No.6418/2019 challenging the validity of the show cause notice dated 25.04.2019. The petitioner also prayed to revise its Form ST-3 return so that invoices which were missed during the filing of the second revised Form ST-3 return, can be included for the purpose of transition of credit to GST regime.
14. This Court by order dated 12.02.2020 directed the respondents to consider the claim of the petitioner for Rs.99,46,810/- manually as per Rule 7B of the Service Tax Rules, 1994.
15. Pursuant to the aforesaid order dated 12.02.2020, the respondents by letters dated 10.06.2020, 16.06.2020, 20.07.2020 and 06.08.2020 sought certain documents pertaining to CENVAT credit from the petitioner. The petitioner submitted the relevant documents for verification of the additional CENVAT credit claim along with letter dated 10.08.2020.
16. Respondent no.3 adjudicated the show cause notice dated 25.04.2019 vide Order-in-original dated 11.08.2021 observing that the petitioner was eligible to total credit of Rs. 71,67,985/- out of Rs. 99,46,810/- and remaining amount of credit of Rs.27,78,825/- was confirmed as ineligible credit by respondent no.3 and thereby rejected the refund claim in part.
17. It is the case of the petitioner that out of the amount of credit of Rs. 27,78,825/-, credit amounting to Rs.23,96,204/- pertained to the invoices which initially were supposed to be issued under the erstwhile service tax regime and therefore, the petitioner claimed the same by showing the entire amount in Form GST TRAN-1.
However, subsequently invoices of Rs.23,96,204/-were raised by the petitioner charging GST under the GST regime and accordingly, as the credit was claimed twice, the same was rejected. The remaining credit amounting to Rs.3,19,148/-pertained to Krishi Kalyan Cess which could not have been carried forward into the GST regime and the balance credit of Rs. 63,473/- was rejected due to lack of supporting documentary evidence to substantiate the claim of credit.
18. The petitioner therefore, has not pressed the claim of Rs. 27,78,825/- before the appellate authority as well as before this Court as the petitioner is not aggrieved by the rejection of the credit of Rs. 27,78,825/- as the amount of the said credit was claimed twice. However, the petitioner was aggrieved by demand of interest of Rs. 24,72,165/- under section 50(3) of the CGST Act and penalty of Rs. 27,78,825/- under section 122(2)(b) of the CGST Act and hence challenge is restricted by the petitioner to levy of interest and penalty only. The petitioner has also remitted the amount towards tax being Rs. 27,78,825/- by Form GST DRC-03 dated 02.09.2021 and further to avoid any dispute, the petitioner has also paid the amount of Rs.24,72,165/- towards interest on the same day.
19. The petitioner being aggrieved by the Order-in-original dated 11.08.2021 passed by respondent no.3 preferred an appeal under section 107 of the CGST Act challenging the levy of interest and penalty by respondent no.3.
20. It is the case of the petitioner that as per the provisions of section 107 of the CGST Act to prefer an appeal, the petitioner is required to deposit an amount equal to 10% of the amount of tax in dispute as pre-deposit.
21. According to the petitioner, as the petitioner was not disputing the tax amount and he discharged the same in its entirety, no pre-deposit was required to be made while preferring the appeal as the appeal was restricted to challenge the levy of interest and imposition of penalty. However, the petitioner while preferring the appeal made a deposit of Rs.2,08,412/- on 27.10.2021 under a mistaken belief.
22. The petitioner has also filed an application for refund of Rs.24,72,165/- paid towards interest on the ground that the interest under section 50 of the Act can be charged only if the ITC has been availed in excess.
23. The Appellate Authority after providing personal hearing to the petitioner by order dated 14.02.2022 rejected the appeal by upholding the order-in-original on the ground that interest was rightly charged under section 50, as ITC was availed in excess by the petitioner and further regarding imposition of penalty, it was observed that fact of excess availment of ITC came to the knowledge of the respondents after verification of Form GST TRAN-1. Aggrieved by order dated 14.02.2022, the petitioner has preferred this petition.
24. Learned advocate Mr. Sanket Gupta for learned advocate Mr. Anand Nainawati submitted that the petitioner was under bona fide belief that it was eligible for entire amount of credit of Rs. 99,46,810/- as stated in Form GST TRAN-1 which included the credit amounting to Rs.27,78,825/-comprising of three components (i) Credit amounting to Rs.23,96,206/- pertaining to the services availed by the petitioner during erstwhile service tax regime but tax invoice for the same was raised by the service provider under GST regime by charging GST against the said service (ii) Credit amounting to Rs. 3,19,148/- pertaining to Krishi Kalyan Cess and (iii) Credit amounting to Rs. 63,473/- pertaining to invoices not readily traceable. It was submitted that upon adjudication of the show cause notice, respondent no.3 in the Order-in-original denied the Cenvat Credit amounting to Rs.27,78,825/- which was accepted by the petitioner and to avoid any dispute and demonstrate the bona fide, the petitioner paid back said amount on 02.09.2021. The petitioner has also paid interest amounting to Rs.24,72,165/- on the same date as confirmed in the order-in-original even though same was not admitted by the petitioner.
25. It was therefore, submitted that by the impugned order dated 14.02.2022, the Appellate Authority could not have confirmed the demand of interest and penalty under section 74 read with section 50 of the CGST Act, 2017 as the petitioner never wrongfully availed or utilised any input tax credit inasmuch as the amount of credit questioned in facts of the case is Cenvat Credit and not the input tax credit as contemplated under CGST Act, 2017.
26. Reliance was placed on definition of “input tax credit” as provided under section 2(63) read with definition of “input tax” as per section 2(62) of the CGST Act, 2017. Referring to both the definitions it was submitted that transitional credit does not get covered either under ‘input tax ‘ or ‘input tax credit’ and therefore, it cannot be construed to be input tax credit for the purpose of section 74 of the CGST Act, 2017 as carried forward Cenvat credit cannot be charged either under Central Tax or State Tax under the CGST Act, 2017. It was submitted that the provisions of section 74 of the CGST Act, cannot be attracted in case of Cenvat Credit carried forward under section 140 of the CGST Act and therefore, interest and penalty could not have been levied by the respondent authority.
27. It was further submitted that the petitioner has deposited the amount of Rs.27,78,825/- on 02.09.2021 and therefore, no interest or penalty could have been levied.
28. Learned advocate Mr. Gupta referred to and relied upon the provisions of section 50(3) of the CGST Act to submit that no interest can be charged as the credit amount availed does not satisfy the definition of “input tax credit” for the purpose of CGST Act.
29. In support of his submission, reliance was placed on the decision of Hon’ble Calcutta High Court in case of Ruchi Soya Industries Ltd. reported in 2016 (336) ELT 463 (Cal) as well as decision of Hon’ble Supreme Court in case of Sales Tax Commissioner v. Modi Sugar Mills reported in AIR 1961 SC 1047 wherein it is held that taxing statute is to be strictly construed. It was therefore, submitted that no interest could have been levied on the petitioner for carry forward of Cenvat Credit under section 140 of the CGST Act.
30. It was further submitted that the respondent authorities could not have imposed the penalty under the provisions of section 122(2)(b) of the CGST Act read with section 74 because bare reading of section 74 provides that input tax credit wrongly availed can be recovered through notice issued under section 74(2) and penalty equivalent to the tax specified in the notice can be recovered whereas in the facts of the case, the petitioner had availed Cenvat Credit by filing Form TRAN-1 and as such the provision of section 74 is not applicable and no penalty could have been levied.
31. Reliance was also placed on circular issued by the Central Board of Indirect Taxes and Customs (CBIC) on 15.03.2018 wherein it is stated that transitional credit is not input tax credit and no refund can be claimed thereof, as such credit pertains to duties and taxes paid under the existing law under the Central Excise Act, 1944 and Chapter V of the Finance Act, 1994 and same cannot be said to have been availed during the relevant period and therefore, same cannot be treated as part of Net ITC. It was therefore, submitted that transitional Cenvat credit cannot be the subject matter of levy of interest and penalty in absence of any mechanism under the CGST Act to recover Cenvat credit pertaining to goods and services purchased/provided under the erstwhile service tax regime.
32. It was further submitted that respondent authorities have also failed to consider that no case of fraud, willful statement or suppression of facts is made out against the petitioner to attract the penalty under section 122(2)(b) read with section 74 of the CGST Act as the claim made by the transitional credit was under bona fide belief of the petitioner that it was eligible for the said amount of credit. It was further submitted that the petitioner is a Government company consisting of senior IAS, IFS, IRTS, IRS officers appointed by the Government of India and hence it cannot be said that any personal benefit of the officers was involved for carrying forward of Cenvat Credit.
33. It was also submitted that the account of the petitioners is subject to regular audits by the Comptroller and Auditor-General of India as per section 102 of the Major Ports Act, 1963 and, therefore, it cannot be said that the petitioner could have intentionally or deliberately claimed excess amount of credit.
34. On the other hand, learned advocate Mr. C.B. Gupta appearing for the respondents submitted that the petitioner has admitted excess carry forward of Cenvat Credit and has already deposited the amount of interest and hence, the interest and penalty was rightly levied under the provisions of the CGST Act.
35. It was submitted that the contention raised on behalf of the petitioner that Cenvat credit cannot be part of input tax credit is not tenable as definition of “input tax” as per section 2(62) of the CGST Act is an inclusive definition. It was therefore, submitted that whenever inclusive definition is given in a statute, it is always intended to enlarge the meaning of words or phrases used in the definition.
36. In support of his submission, reliance was placed on the decision of Hon’ble Supreme Court in case of Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd and others reported in 1987(1) SCC 424. It was submitted that transitional Cenvat credit is covered under the definition of “input tax credit” under the GST regime once such Cenvat Credit is credited in the Electronic Credit Ledger.
37. It was submitted that the petitioner has utilised such credit for payment of GST by debiting Electronic Credit Ledger . It was therefore, submitted that the petitioner is liable to pay the interest and penalty for claiming such carry forward of Cenvat credit as input tax credit to discharge its output tax liability.
38. Learned advocate Mr. Gupta referred to and relied upon the Rule 117 and Rule 121 of the CGST Rules, 2017 to submit that after crediting the amount carried forward as per Form GST TRAN-1, if any credit is wrongly availed, then proceedings under section 73 or section 74 of the CGST Act can be initiated in respect of such wrongly availed credit. It was therefore, submitted that the petitioner has not challenged the confirmation of demand of ineligible credit of Rs.27,78,825/- under section 74(1) of the CGST Act and as a natural corollary, interest and penalty has rightly been levied.
39. It was further submitted that as per the provisions of section 74(1) of the CGST Act, penalty equivalent to tax is to be imposed once demand has been confirmed in order-in-original and accepted by the petitioner.
40. It was therefore, submitted that no interference is called for in the impugned order passed by the respondent authorities while exercising extraordinary jurisdiction under Article 227 of the Constitution of India.
41. Having heard the learned advocates for the respective parties and considering the facts of the case and on perusal of the impugned orders passed by the respondent authorities, it appears that the petitioner has made a claim to carry forward excess Cenvat Credit in Form GST TRAN-I under a bona fide belief.
42. It would, therefore, be germane to refer to the relevant provisions for levy of interest and penalty under the GST Act to determine as to whether the impugned orders are in accordance with law or not.
“(62) “input tax” in relation to a registered person, means the Central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes-
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy;
(63) “input tax credit” means the credit of input tax;
“50. Interest on delayed payment of tax
(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council:
[PROVIDED that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.]
(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.
[(3) Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed.]”
“74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by a reason of fraud, or any willful – misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short-paid or to whom the refund has erroneously been made, or who has wrongly availed or utilized input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with the interest payable thereon under section 50 and a penalty equivalent to tax specified in the notice.”
“122. Penalty for certain offences
xxx
(2) Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised.-
xxx
(b) for reason of fraud or any wilful-misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher…. ”
43. On perusal of the above provisions of the GST Act, it is clear that the interest can be levied under section 50(3) of the CGST Act which has been substituted by the Finance Act, 2022 with effect from 01.07.2017 where the input tax credit has been wrongly availed and utilized. The definition of “input tax credit” as per section 2(63) means the credit of input tax whereas “input tax” has been defined in section 2(62) of the Act in relation to a registered person means the Central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the CGST Act and SGST Act and sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act. Thus, on a first blush, it appears it is not an input tax and therefore, not an input tax credit. However, the provisions of section 140 of the CGST Act, stipulates transitional arrangement for input tax credit. When the Cenvat credit which is carried forward as per the return relating to period ending with day immediately preceding the appointing day i.e. 01.07.2017 furnished by the assessee under the existing law, then the assessee is entitled to take in his Electronic Credit Ledger amount of such Cenvat credit meaning thereby the petitioner who carried forward Cenvat credit as per TRAN-I, same was credited in the Electronic Credit Ledger. Therefore, the credit available as per the existing law in form of Cenvat credit or any other input tax credit, would fall within the scope of “input tax credit” under the CGST Act also. Therefore, we are of the opinion that the petitioner was liable to pay interest as computed under the provisions of section 50(3) for wrongly availing Cenvat credit and the petitioner has rightly deposited such amount after the impugned order was passed.
44. However, so for as imposition of penalty is concerned, the respondent authorities have failed to consider the provisions for levy of penalty. The Appellate Authority while confirming the penalty imposed in order-in-original without taking into consideration that there was no fraud, or any willful statement or suppression of facts made by the petitioner to evade the tax has observed as under:
“8. I find that for imposing penalty the adjudicating authority has invoked provisions of section 74(1) read with section 122(2)(b) of the Act. From the provisions of section 74(1) extracted at para 7 supra it is clear that demand under this provision is made wherever, the elements of fraud, or wilful-misstatement or suppression of facts are involved. Under these circumstances, the penal provisions of section 122(2)(b) of the Act are automatically attracted. The text of these provisions is extracted below:-
2) Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilized-
(a)…
(b) for reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher
From the above provisions, it is obvious that once the demand has been confirmed invoking the provisions of section 74(1) of the Act and it has not been contested by the Appellant, the adjudicating authority has no other option but to impose penalty under section 74(1) read with section 122(2)(b) of the Act.
8.1 The Appellant’s main contention against the imposition of penalty is that they being a Government entity, personal interest of anybody is not involved and there is no intention to claim more credit than legally available to the Appellant. On the other hand, the adjudicating authority while imposing penalty has categorically observed as under:
“The Noticee had wilfully taken cenvat credit in its trans-1 for which it was not eligible e.g. KKC, Input Tax Credit in respect of Indian Port Association etc., and deliberately misstated the facts in its Trans-1, so as to utilize this Cenvat credit in its payment of out GST liability and this facts was unearthed only during the verification of Tran-1. I find that the Noticee did not intimate, on its own, to the department about this availment of ineligible Cenvat Credit in its Tran-1 and thereby his intention to evade taxi. Therefore, the Noticee is liable for penalty u/s 74(1) of the CGST Act, 2017 read with section 122(2)(b) of the CGST Act, 2017.
I find that adjudicating authority is right in observing that above ineligible availment of ITC would have remained concealed if the department had not initiated the verification of the Trans-1 filed by the Appellant. I further find that provisions of section 74(1) and section 122(b) of the Act are pari materia with provisions of section 11A and 11AC of the Central Excise Act, 1944. The Hon’ble Supreme Court in the case of Union of India Vs. Rajasthan Spinning & Weaving Mills 2009 (238) E.LT. 3 (S.C.) discussing the imposition of penalty under section 11AC of the Central Excise Act, 1944, the have held that
“One cannot fail to notice that both the proviso to sub-section 1 of Section 11A and Section 11AC use the same expressions by reasons of fraud collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty.” In other words, the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is legally tenable finding to that effect then the provision of Section 11AC would also get attracted.”
From the Hon’ble Supreme Court’s findings supra, it can be construed that once the demand has been confirmed invoking the provisions of section 74(1) of the Act the penalty under the said section read with provisions of section 122(2) (b) of the Act gets attracted. Accordingly, I find no reason to deviate from the findings recorded by the adjudicating authority while imposing the penalty.”
45. The petitioner under bona fide belief claimed transitional Cenvat credit as input tax credit and on coming to know the mistake, the petitioner also attempted to file second revised TRAN-I which could not be filed and this Court by order dated 12.02.2020 directed the respondents to accept the revised return in Form ST-3 manually and thereafter consider the claim of the petitioner for amount of input tax credit of Rs.99,46,810/- under Rule 7B of the Service Tax Rules, 1994 so as to enable the petitioner to take advantage of the order dated 07.02.2020 to revise form TRAN-I to be filed online on or before 31.03.2020.
46. The petitioner was therefore under bona fide belief that amount of Cenvat credit to the extent of Rs.99,46,810/- was available to be carried forward. Out of the said amount when verification was made by the respondent authority, the petitioner accepted that Cenvat credit to the extent of Rs.27,78,825/- could not have been carried forwarded and therefore, the provisions of section 122(1)(b) read with section 74(1) could not have been invoked by the adjudicating authority, more particularly, when the petitioner has not challenged the confirmation of demand of the excess ITC claimed in Form TRAN-I.
47. Reliance placed by the appellate authority on the decision in case of Union of India v. Rajasthan Spinning & Weaving Mills reported in 2009 (238) ELT 3 (SC) discussing the imposition of penalty under section 11AC of the Central Excise Act, 1944 which is stated to be pari-materia provision for levy of imposition of penalty under the GST Act is not applicable in the facts of the case as there was no conscious or deliberate wrong doing on part of the petitioner and as such, the order passed by the adjudicating authority confirming the disallowance of claim of the petitioner of transitional Cenvat Credit of Rs. 27,78,825/- out of transitional Cenvat credit of Rs.99,46,810/-cannot be said to be claim made for a reason on account of fraud or any suppression of fact to evade tax.
48. In view of foregoing reasons, considering the facts of the case, the findings arrived at by both the authorities that the petitioner deliberately misstated the facts in TRAN-I so as to utilise Cenvat credit in its payment of output GST liability which was found during the verification of TRAN-I cannot be the basis for imposition of penalty as it cannot be said that there was any intention on part of the petitioner which is a Government company to evade tax.
49. The impugned orders passed by the respondent authorities are therefore modified so far as imposition of penalty is concerned and the order of imposition of penalty of Rs.27,78,825/- is hereby quashed and set aside.
Petition accordingly partly succeeds. Rule is made absolute to the aforesaid extent. No order as to costs.
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