2008 (5) TMI 674 - AT - Central Excise

Penalty and interest - Cenvat/Modvat credit - Capital goods - Held that - when the credit has not been utilized and also reversed after receipt of the Adjudication order, imposition of penalty and interest are not warranted - appeal allowed.

Summary

Issues:
1. Disallowance of Cenvat credit on capital goods.
2. Imposition of penalty and interest under Rule 13 of the Cenvat Credit Rules, 2002.
3. Applicability of credit on Iron and Steel products used in Civil Construction.
4. Dispute regarding admissibility of credit and reversal of credit by the Appellants.
5. Precedents cited by both parties.

Analysis:
1. The Appellants were involved in the manufacture of VP Sugar and Molasses and availed Cenvat credit on capital goods like MS Plates, HR Sheets, Angles, and Channels. The Adjudicating Authority disallowed credit amounting to Rs. 2,41,255 and imposed a penalty of equal amount under Rule 13 of the Cenvat Credit Rules, 2002. The Commissioner (Appeals) later modified the order, reducing the demand to Rs. 22,103 and imposed a penalty of equal amount.

2. The Appellants argued that they had reversed the amount of Rs. 22,103 after receiving the Adjudication order and had not utilized the credit, making the penalty and interest unjustified. They relied on legal precedents to support their argument. The learned DR, however, reiterated the Commissioner (Appeals) finding that the credit on Iron and Steel products used in Civil Construction was not admissible, leading to the penalty and interest imposition.

3. The Tribunal, after considering both sides and examining the records, noted the dispute over the admissibility of credit on Iron and Steel products. The Commissioner (Appeals) had reduced the disallowed credit to Rs. 22,103, which the Appellants reversed without utilizing. Citing a precedent involving Bombay Dyeing & Manufacturing Co. Ltd., the Tribunal held that penalty and interest were not applicable when credit was reversed without utilization due to wrong availment.

4. Ultimately, the Tribunal found that since the credit was not utilized and was reversed after the Adjudication order, the imposition of penalty and interest was unwarranted. Consequently, the penalty and interest were set aside, and the Appeal was allowed with consequential relief.

This detailed analysis of the judgment highlights the issues related to Cenvat credit disallowance, penalty imposition, admissibility of credit on specific goods, and the significance of reversal of credit without utilization in determining the applicability of penalty and interest.