Every audit objection can’t lead to invocation of extended period, and levy penalty

LANDIS + GYR LTD. V. COMMISSIONER OF CENTRAL EXCISE (Kolkata - CESTAT)

Every shortcoming noticed during Audit cannot be held as due to mala fide intention on the part of the assessee so as to invoke extended period of limitation and levy penalty

The assessee was engaged in trading and manufacturing activities. On being pointed out in Departmental audit in 2007, the assessee reversed proportionate credit relating to trading activity for past 2 years and paid interest. Later, in 2009, Department issued show-cause notice seeking levy of penalty arguing that if audit had not pointed out wrong credit, amount would not have been recovered from the assessee.

The Tribunal set aside the penalty imposed on the assessee with the following observation

1. Suppression or misstatement of facts with intent to evade payment of tax is a pre-condition of levy of penalty. Show-cause notice had not listed circumstances or facts which were suppressed and how the assessee availed credit with mala fide intentions; 
2. Objective of conducting Audit is to ascertain correctness of payment of tax, etc., hence, every shortcoming noticed during Audit cannot be held as due to mala fide intention on part of the assessee; 
3. Irrespective of fact whether tax was paid either involving extended period or otherwise, or paid voluntarily or in pursuance to a demand notice, penalty under section 78 cannot be justified unless it is found that tax short paid or not paid was on account of suppression of fact, misstatement etc.; 
4. Hence, in absence of mala fide intention of assessee, penalty under section 78 was set aside.