2005 (2) TMI 694 - AT - Central Excise

Summary

Issues:
1. Duty payment on modvated inputs cleared by the appellant.
2. Applicability of Rule 3(4) of the Cenvat Credit Rules, 2001 and 2002.
3. Imposition of penalty under Rule 13 of the Cenvat Credit Rules.

Analysis:

Issue 1: Duty payment on modvated inputs cleared by the appellant
The appellant cleared modvated inputs after payment of duty at the rate applicable on the inputs and assessed them on an ad valorem basis at the sale price. The Deputy Commissioner held that the appellant should pay an amount equal to the credit availed on those inputs. However, the Commissioner allowed the appeal, citing Rule 3(4) of the Cenvat Credit Rules, which mandates that when inputs on which Cenvat credit has been taken are removed as such, the manufacturer shall pay duty at the rate applicable on the date of removal. The Commissioner found the demand for payment of duty equivalent to the credit availed on the inputs cleared to be in violation of Rule 3(4).

Issue 2: Applicability of Rule 3(4) of the Cenvat Credit Rules, 2001 and 2002
The Commissioner's order was based on the interpretation of Rule 3(4) of the Cenvat Credit Rules, which requires the payment of duty on inputs removed as such at the rate applicable on the date of removal. The Commissioner held that the duty payments by the appellant were in accordance with the rule, and the Deputy Commissioner erred in demanding additional duty equivalent to the credit availed on the inputs cleared. The Commissioner's decision was supported by sample invoices presented during the hearing, confirming that the duty payments were made at the correct rate and transaction value.

Issue 3: Imposition of penalty under Rule 13 of the Cenvat Credit Rules
The Lower Authority had imposed a penalty of Rs. 1 lakh under Rule 13 of the Cenvat Credit Rules. However, the Commissioner set aside the penalty, citing legal precedents that no penalty can be imposed in cases involving the interpretation of law. The Commissioner referred to judgments in Hindustan Steels Ltd v. State of Orissa and DCW Ltd. v. AC, Tuticorin, emphasizing that penalties cannot be imposed in matters of legal interpretation. Therefore, the penalty was overturned, and the appeal was allowed.

In conclusion, the Tribunal upheld the Commissioner's decision, ruling in favor of the appellant based on the correct application of Rule 3(4) of the Cenvat Credit Rules and setting aside the penalty imposed under Rule 13.