2007 (8) TMI 617 - AT - Central Excise

Penalty - Cenvat/Modvat - Wrong availment of credit - Held that - appellant immediately reversed the modvat credit amount, on being pointed out by the Audit. They also paid interest of ₹ 1,10,325/-. It is not a case where modvat credit was availed in excess by any fraudulent mean. As contended by the appellant, the same appears to be result of inadvertent mistake they have occurred on account of mis-calculation. Immediate reversal appellant by the appellant reflects upon their bona fide. Further, the payment of interest to the tune of ₹ 1.10 lakhs approx. is also penal in nature and stands paid by the appellant - penalty set aside.

Summary

Issues:
1. Incorrect availing of cenvat credit by the appellants.
2. Imposition of penalty under Section 11AC and Rule 13(1) of Cenvat Credit Rules, 2002.
3. Appeal against the penalty imposed.

Analysis:
The judgment by the Appellate Tribunal CESTAT, Ahmedabad dealt with the case where the appellants were engaged in the manufacture of plasticizers and were availing cenvat credit under Rule 3 of the Cenvat Credit Rule, 2002. It was observed during an audit that the appellants had wrongly availed excess cenvat credit amounting to Rs. 5,52,226/- by not following the prescribed formula under Rule 3(6)(a) of the Cenvat Credit Rules, 2002. The appellants had taken the credit of the full amount of duty even though the duty paying documents indicated a restricted credit to be availed. Upon being pointed out by the Audit party, the appellants paid the excess duty and interest. This led to the initiation of proceedings against them, resulting in the imposition of penalties under Section 11AC and Rule 13(1) of Cenvat Credit Rules, 2002.

In the appeal, the Commissioner (Appeals) set aside the penalty under Section 11AC and reduced the penalty under Rule 13(1) from Rs. 3 lakhs to Rs. 1 lakh. The Tribunal, after considering the facts, noted that the appellants had immediately reversed the modvat credit amount upon detection by the Audit and had paid the interest as well. It was observed that the excess credit availed was due to an inadvertent mistake in calculation rather than fraudulent means. The Tribunal acknowledged the appellant's immediate corrective actions and the payment of interest as penal in nature. Consequently, the Tribunal decided not to impose a separate penalty and set aside the penalty of Rs. 1 lakh imposed under Rule 13(1) of Cenvat Credit Rules, 2002.

In conclusion, the appeal was disposed of with the setting aside of the penalty, considering the appellant's prompt rectification of the error and the payment of interest as sufficient corrective measures. The judgment highlighted the importance of compliance with the prescribed rules and the significance of immediate rectification of errors to demonstrate good faith in tax matters.