2007 (3) TMI 493 - AT - Central Excise

Summary

Issues:
Manufacture of printed cartons falling under Chapter 48 of the Central Excise Tariff Act, 1985; Availing Cenvat credit of duty paid on inputs; Shortage of inputs found during a visit by Central Excise Officers; Transfer of inputs to nearby premises due to lack of space; Initiation of proceedings through show cause notice; Deputy Commissioner's order dropping penal action due to lack of evidence of intentional fraud; Appeal to Commissioner (Appeals) resulting in imposition of personal penalty and interest; Appeal against Commissioner (Appeals) order.

Analysis:

The appellants were involved in the manufacturing of printed cartons under Chapter 48 of the Central Excise Tariff Act, 1985, and were benefiting from Cenvat credit on duty paid for inputs. During a visit by Central Excise Officers, it was discovered that certain inputs for which the appellants had claimed Modvat credit were short. The appellants explained that these inputs were temporarily stored in a nearby premises due to space constraints at their factory. Although the appellants debited the credit initially, they later re-availed it upon the return of the inputs to the factory.

The Deputy Commissioner, after investigating the matter, decided to drop the proceedings against the appellants. The Deputy Commissioner found no evidence suggesting that the appellants had intentionally cleared raw materials after availing Cenvat credit to defraud the government revenue. The Deputy Commissioner accepted the explanation provided by the appellants regarding the temporary storage of raw materials due to space issues. Consequently, the penal action was waived with a caution for the appellants to be more diligent in the future.

However, the revenue appealed against the Deputy Commissioner's decision to the Commissioner (Appeals), who overturned the decision and imposed a personal penalty equal to the Modvat credit amount involved in the inputs, along with interest. The appellate tribunal noted that there was no evidence or allegation indicating that the goods were removed from the registered premises with the intent to wrongfully claim credit. The movement of goods to the adjacent premises was temporary and due to space constraints, without any mens rea on the part of the appellants.

The tribunal upheld the imposition of a penalty but reduced it significantly to a nominal amount of Rs. 5,000, considering the lack of intentional wrongdoing. Regarding the confirmation of interest, the tribunal concluded that since the credit was availed after the goods were received, despite not being stored in the factory premises, the imposition of interest was not justified. Therefore, the tribunal modified the Commissioner (Appeals) order to reflect these adjustments, emphasizing that a token penalty sufficed for the procedural contravention in this case.

In conclusion, the tribunal's decision on the appeal highlighted the importance of considering intent and circumstances when determining penalties for procedural violations related to availing credits under the Modvat provisions.