2005 (5) TMI 494 - AT - Central Excise

Summary

Issues:
1. Accumulated input credit lapsing under Notification No. 11/2000, paragraph 7A.
2. Appellant's utilization of credit for duty payment.
3. Imposition of penalty on the appellant.
4. Legal entitlement to use entire credit for payment of duty.
5. Impact of the amendment in Section 37B of the Central Excise Act.
6. Precedent regarding penalty payment before the issuance of show cause notice.

Analysis:

1. The appellant, a manufacturer of texturised yarn, had accumulated input credit exceeding Rs. 27 lakhs until 1-3-2000, when Notification No. 11/2000 introduced paragraph 7A in Rule 57H, resulting in the lapse of the outstanding credit. Despite this, the appellant utilized Rs. 19 lakhs of credit for duty payment between 1st March and 7th March. Subsequently, on 8th March, the appellant reversed the remaining credit and deposited Rs. 19,08,934/- into the PLA along with interest, in acknowledgment of using the credit for duty payment. The impugned order confirmed this payment and imposed a penalty of Rs. 50,000 on the appellant.

2. The appellant contended, citing the decision in the case of Eicher Motors Ltd., that they were entitled to use the entire credit for duty payment, making the denial of credit unjustified. Additionally, they argued that the penalty imposition was unwarranted as the amount was deposited before the show cause notice was issued.

3. Upon review and considering the arguments, it was noted that the amendment in Section 37B of the Central Excise Act, introduced via the Finance Act, 1999, rendered the appellant's reliance on the Eicher Motors Ltd. decision ineffective. However, the appellant's assertion regarding the penalty was deemed valid based on the precedent set by the Larger Bench of the Tribunal in C.C.E. v. Machino Montell (I) Ltd. The Tribunal held that if duty is paid before the issuance of a show cause notice, penalty cannot be imposed. In this case, the duty was paid shortly after credit utilization and before the notice was issued.

4. Consequently, the impugned order was modified to annul the penalty, thereby partially allowing the appeal. The decision was pronounced in open court, reflecting the Tribunal's ruling on the penalty issue in favor of the appellant.