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2006 (12) TMI 383 - AT - Central ExciseCenvat/Modvat - capital goods - Demand for interest and penalty imposed - SCN issued to recover the balance - manufactured grey fabric of cotton falling under the Chapter Headings 52.07, 52.08, and 52.09 of the Schedule to the Central Excise Tariff Act, 1985 - HELD THAT - The assessee did not have a production programme culminating with setting up of machinery for manufacturing processed fabric or articles of apparel which they had intimated to the department. A classification list was filed on 18-5-2001, which showed woven fabric of cotton containing 85% or more by weight of cotton as the only dutiable item along with other non-dutiable products manufactured by the assessee. Apparently this entry was meant to cover clearances of such fabrics got manufactured on job work basis. As the appellants did not manufacture any dutiable goods in May, 2001 or in the near future, it cannot be inferred that the said classification list was filed in view of their imminent production of dutiable goods. The appellants did not have any intention of using the subject capital goods in the manufacture of dutiable final products which they had intimated to the department as in Kailash Auto Builders case 2001 (10) TMI 164 - CEGAT, BANGALORE . Similarly, the department was not informed that the appellants had a project for setting up a composite mill for manufacture of excisable goods chargeable to duty as in the case of Bhasker Industries Ltd. (supra). Therefore, the ratio of those two decisions is not relevant to the subject case. The Suryaroshini decision was upheld by the Supreme Court. A similar ratio laid down by the Tribunal in Grasim Industries Ltd. case 2004 (3) TMI 277 - CESTAT, CHENNAI also was upheld by the Apex Court. Therefore, the demand as regards the capital goods credit taken in the impugned order is unassailable. We find that the appellants had intimated the jurisdictional Dy. Commissioner, the details of the goods cleared by the unit and the fact of import of capital goods and the CVD paid, of which they were entitled to take Cenvat credit. The Dy. Commissioner in his letter, approved the procedure followed by the appellants and specifically informed them that in the event of clearing the processed fabric without payment of duty, they are not eligible to take Cenvat credit on both inputs and capital goods . Considering the fact that the assessee had cleared dutiable goods during the material time though not manufactured by them, and that they had intimated the procedure followed by them to the department, the appellant is entitled to benefit of doubt that they had bonafidely believed in their eligibility to the impugned credit. Also, the credit remains unutilized in their accounts even today. In the circumstances, we find that the appellants do not deserve a penalty u/s 11AC of the Act. The decision in Zunjarrao Bhikaji Nagarkar 1999 (8) TMI 142 - SUPREME COURT mandates that when a person is found liable to penalty under Rule I73Q, the adjudicating authority does not have discretion not to impose penalty, but has discretion only as regards the amount of penalty. Rule 13 of the Cenvat Credit Rules is also similar as the relevant language considered in Zunjarrao Bhikaji Nagarkar case. Thus, we hold that the appellants are liable to penalty under Rule 173Q/Rule 13(2). The appeal filed by M/s. Precot Mills Ltd. is thus allowed by way of remand in the above terms. Needless to say that the appellants shall be afforded a reasonable opportunity of being heard in the remand proceedings. Refrain from demanding interest u/s 11AB on the credit - HELD THAT - We find that as per the statutory provisions, it is mandatory that when Cenvat credit has been taken wrongly, the same shall be recovered along with interest. In view of the unambiguous mandate of the law, the Commissioner s order not demanding interest as per the rules is incorrect. Thus, we allow the department s appear and order that the appellants shall pay appropriate interest on the wrongly taken Cenvat credit to be determined in de novo proceedings.
Issues Involved:
1. Eligibility of Modvat/Cenvat credit on capital goods used for manufacturing exempted goods. 2. Allegation of non-disclosure and intent to evade duty. 3. Imposition of penalty under various sections and rules. 4. Demand for interest on wrongly availed credit. Detailed Analysis: 1. Eligibility of Modvat/Cenvat Credit: M/s. Precot Mills Ltd. (PML) availed Modvat/Cenvat credit on capital goods used for manufacturing grey fabric, which is exempt from duty. The credit was taken under Rule 57AB of Central Excise Rules, 1944, and Rule 3 of Cenvat Credit Rules, 2001, totaling Rs. 57,94,586/-. The Commissioner disallowed the credit, citing that the capital goods were used exclusively for manufacturing exempted goods, invoking Rule 57AD(3) of CER, 1944, and Rule 6(4) of CCR, 2001. The Tribunal upheld this decision, stating that the availability of Modvat credit must be determined at the time of receipt of the capital goods, referencing the Tribunal's decision in CCE, Coimbatore v. Sengunthar Spinning Mills and the Supreme Court's decision in Surya Roshni Ltd. The Tribunal noted that PML did not have a production program for dutiable goods at the time of availing the credit. 2. Allegation of Non-Disclosure and Intent to Evade Duty: PML contested the allegation of non-disclosure, arguing that they had informed the department about their manufacturing activities and obtained necessary registrations. They claimed that the capital goods were intended for the manufacture of both dutiable and exempted goods over the factory's lifespan. The Tribunal found that PML had informed the department about their activities, but the Commissioner's order indicated that PML had taken credit with the apparent intention to avail ineligible credit. The Tribunal did not find sufficient evidence to support the allegation of intent to evade duty. 3. Imposition of Penalty: The Commissioner imposed a composite penalty of Rs. 57,94,586/- under Section 11AC of the Central Excise Act, 1944, read with Rules 57AH(2) and 173Q of CER, 1944, and Rule 13(2) of CCR, 2001. The Tribunal set aside the composite penalty, citing judicial precedents that composite penalties under different statutory provisions are impermissible. The Tribunal remanded the case to the Commissioner to reconsider the penalty under the specific provisions of Rule 173Q/Rule 13(2), noting that PML had informed the department about their activities and had not utilized the credit, thus deserving the benefit of the doubt regarding their eligibility to the credit. 4. Demand for Interest: The Commissioner did not demand interest on the disallowed credit, reasoning that the credit had not been utilized. The Tribunal found this decision incorrect, referencing Rule 57AH(2) of CER, 1944, and Rule 12 of CCR, 2001, which mandate the recovery of interest on wrongly taken or utilized credit. The Tribunal allowed the department's appeal, ordering PML to pay appropriate interest on the wrongly availed credit. Conclusion: The Tribunal upheld the disallowance of Modvat/Cenvat credit on capital goods used exclusively for manufacturing exempted goods and remanded the issue of penalty for reconsideration. The Tribunal also directed the recovery of interest on the wrongly availed credit, emphasizing the mandatory nature of the statutory provisions. The case was remanded for fresh adjudication with a directive to afford PML a reasonable opportunity of being heard.
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