The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Ahmedabad has held that no further penalty can be imposed where service tax dues, including interest and statutory penalty, were fully discharged before issuance of a show-cause notice.
The bench comprising Judicial Member Somesh Arora and Technical Member Satendra Vikram Singh noted, “As the Appellant had already paid the amount along with interest and penalty at the rate of 1% per month, in terms of the provisions of Section 73(4A), the matter… should have been closed without issue of show cause notice.”
The case arose after the Department alleged wrongful availment of Cenvat Credit worth ₹1.55 crore on works contract services used for factory construction—an activity excluded from the definition of input services under the Cenvat Credit Rules, 2004. Following investigation, the adjudicating authority confirmed the demand, imposed equal penalty under Rule 15(3) read with Section 78 of the Finance Act, 1994, and also levied ₹25 lakh penalty on the company’s director.
On appeal, the Commissioner (Appeals) restricted the penalty to ₹1.08 crore, limited to the credit actually utilized, and set aside the penalty on the director. The assessee, however, argued before CESTAT that the disputed credit, along with interest and penalty at 1% per month, had already been paid well before the notice was issued. They contended that under Section 73(4A) of the Finance Act, 1994, such payment should have closed the matter without further proceedings.
The tribunal held that invocation of Section 78 for equal penalty was unwarranted and modified the impugned order accordingly.
Case Details
Case Title: Cesare Bonetti India Ltd Versus C.C.E.
Case No.: Service Tax Appeal No. 11972 of 2018
Date: 09.09.2025
Counsel For Appellant: Kushal Rathi, CA
Counsel For Respondent: N. G Makwana
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