2007 (11) TMI 503 - AT - Central Excise

Summary

Issues:
1. Penalty imposed under Rule 57-I(4) and Rule 57U(6) for wrong availment of credit on inputs.
2. Applicability of Rule 57U(4) & (5) in the case of availing credit on capital goods.
3. Imposition of interest under Section 11AB for failure to reverse the credit availed on defective capital goods.

Analysis:

Issue 1: Penalty under Rule 57-I(4) and Rule 57U(6)
The appellant availed Modvat credit on a computer imported as capital goods but later found it to be faulty and returned it without preparing duty paying documents. The penalty was imposed without specifying the clause under which it was levied. The appellant argued that there was no fraud or wilful misstatement in availing the credit on the computer as per Central Excise Rules. The respondent contended that the error would not have been rectified if not pointed out, implying an intent to evade duty. The Tribunal held that Rule 57-I(4) does not apply to capital goods, upholding the duty paid by the appellant.

Issue 2: Applicability of Rule 57U(4) & (5)
Regarding the penalty under Rule 57U(6), it was found that the appellant promptly discharged the duty liability upon notification by range officers, before the show cause notice. Rule 57U(4) & (5) specify that penalty does not apply if duty is paid within three months of demand. Since the duty was paid promptly, the Tribunal set aside the penalty imposed under Rule 57U(6) as there was no intent to evade payment of duty.

Issue 3: Imposition of Interest under Section 11AB
The Tribunal determined that the appellant's failure to reverse the credit on defective capital goods did not warrant the imposition of interest under Section 11AB. The appellant had correctly availed the credit based on proper documents and rectified the error upon notification. Therefore, the imposition of interest was deemed incorrect and set aside.

In conclusion, the Tribunal allowed the appeal, setting aside the imposition of penalty and interest. The judgment clarified the application of relevant rules and provisions in the context of availing credit on capital goods and rectifying errors promptly upon notification.