2003 (4) TMI 426 - AT - Central Excise

Penalty for wrong availment of Cenvat credit - Penalty - Mandatory penalty for wrong availment of Cenvat credit

Summary

Issues:
1. Wrong availment of Cenvat credit for payment of duty.
2. Imposition of penalty under Rule 25 of the Central Excise Rules read with Section 11AC.
3. Intention to evade payment of duty.
4. Application of Section 11AC in contraventions of Cenvat Credit Rules.

Analysis:
1. The appellants, a SSI unit, utilized excess Cenvat credit amounting to Rs. 4,46,928 for duty payment from September to December 2001. The Department invoked Rule 8(4)(ii) against the appellants due to the wrong availment of credit. The appellants rectified the mistake on 31-3-2003 after paying the duty amount on 22-7-2002. A show cause notice was issued on 26-7-2002 for recovery of the duty, interest, and penalty under Section 11A of the Central Excise Act.

2. The Joint Commissioner imposed a penalty of Rs. 4,46,928 on the appellants under Rule 25 read with Section 11AC. In the appeal, the Commissioner (Appeals) upheld the penalty but reduced it to Rs. 1.25 lakh. The main contention was whether penalty should be imposed when duty with interest was already paid before the show cause notice, citing relevant tribunal decisions.

3. The argument revolved around the intention to evade payment of duty. The appellants claimed inadvertent error in availing excess credit due to oversight of Rule 3(3) of the Cenvat Credit Rules. The lower authorities found intention to evade duty, leading to the penalty. The appellants' plea of inadvertent error was not adequately considered.

4. The Tribunal analyzed the contravention of Rule 3(3) with intent to evade payment of duty. The contravention attracted the penal clause of Section 11AC. However, the Tribunal found that the appellants' inadvertent error did not demonstrate an intention to evade duty, especially since the duty was paid before the show cause notice. Therefore, the mandatory penalty under Section 11AC was deemed unwarranted, aligning with previous tribunal decisions.

In conclusion, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellants.