2006 (2) TMI 454 - AT - Central Excise

Summary

Issues:
Denial of Modvat credit and imposition of penalty under Rule 7(1)(b) of Cenvat Credit Rules, 2002.

Analysis:
1. The appeals were filed against the denial of Modvat credit amounting to approximately Rs. 1.2 crores and the imposition of penalties, based on Rule 7(1)(b) of the Cenvat Credit Rules, 2002. This rule specifies the conditions under which CENVAT credit can be availed by a manufacturer.

2. The appellant, a manufacturer operating under the brand name "Oriflame," imported inputs and finished products during 1996-97. Disputes arose regarding the customs duty paid on imported items, including allegations of suppression of facts by the appellant. However, the dispute did not undergo adjudication, and the appellant sought settlement through the Settlement Commission.

3. The Settlement Commission ordered the appellant to pay the differential duty on imported inputs and finished products but did not impose penalties. The appellant complied with the Commission's order, paid the duty, and obtained certificates/supplementary invoices reflecting the payment. Subsequently, the appellant claimed Cenvat credit equivalent to the duty paid on the inputs.

4. A show-cause notice was issued proposing to deny the credit and impose penalties. The impugned order denied the credit and imposed penalties on the appellant manufacturer and its Authorized Signatory. The appeals were filed against this order.

5. The appellant argued that since the Settlement Commission granted complete immunity from prosecution, penalty, and interest on imports of inputs, the denial of credit based on suppression of facts under Rule 7(1)(b) was incorrect. The appellant contended that merely admitting and rectifying a short payment, as per the settlement order, does not imply admission of suppression of facts or duty evasion.

6. The Departmental Representative (DR) supported the Commissioner's findings, emphasizing the suppression of facts by the appellant as per the show-cause notice and the applicability of Rule 7(1)(b) of the Cenvat Credit Rules.

7. The Tribunal analyzed the situation and concluded that the denial of CENVAT credit was only justified if the short levy of duty resulted from suppression of facts, fraud, etc. The Settlement Commission's order did not establish suppression of facts regarding the import of inputs, the subject of Cenvat Credit. Therefore, the Commissioner erred in denying the credit and imposing penalties.

8. Consequently, the appeals were allowed, and relief was granted to the appellants, as the denial of credit and imposition of penalties were deemed unjustified based on the specific circumstances and legal provisions involved.