2006 (1) TMI 335 - AT - Central Excise

Summary

Issues:
1. Applicability of Rule 9(2) of Cenvat Credit Rules, 2002 regarding reversal of credit.
2. Imposition of penalty and interest on the respondents.
3. Interpretation of Rule 12 of Cenvat Credit Rules for recovery of wrongly utilized credit.
4. Applicability of Rule 13 of Cenvat Credit Rules for penalty imposition.

Analysis:
The appeal before the Appellate Tribunal CESTAT, New Delhi was against the Order-in-Appeal allowing the respondents' appeal related to the manufacture of P & P Medicines and availing Cenvat credit. The respondents opted for finished goods exemption from 1-4-2002, leading to a requirement under Rule 9(2) to reverse credit on balance stock of inputs. The respondents failed to comply, resulting in a demand for credit reversal and penalty imposition by the adjudicating authority. The Commissioner (Appeals) upheld duty confirmation but set aside penalties and interest, prompting the revenue's appeal.

Upon hearing, the Tribunal noted that the Appellate Authority set aside penalties and interest based on Rule 12 of Cenvat Credit Rules, which allows recovery of wrongly utilized credit along with interest. The Tribunal clarified that Rule 12 applies in cases where credit was used incorrectly, as in this instance where credit was utilized for finished goods without using inputs in production. Consequently, the order-in-appeal's decision that interest was not payable under Rule 12 was overturned, directing the respondents to pay interest on the confirmed duty amount.

Regarding penalties, the Tribunal agreed with the order-in-appeal that penalties were not applicable under Rule 13 of Cenvat Credit Rules. Rule 13 pertains to penalties for wrongly taken and utilized credits due to fraud or collusion, which was not the case here. The Tribunal upheld the Appellate Authority's decision to set aside penalties, as the respondents correctly availed and utilized credits within legal provisions. As a result, the appeal was partly allowed, with penalties being deemed inapplicable in this scenario.

In conclusion, the Tribunal clarified the application of Rule 12 for recovery of wrongly utilized credit and Rule 13 for penalty imposition, ultimately partially allowing the appeal by the revenue while upholding the decision on penalties and interest based on the specific provisions of the Cenvat Credit Rules.