2008 (10) TMI 511 - AT - Central Excise

Interest - Cenvat/Modvat - Irregular availment of credit on capital goods - Held that - the respondents availed 100% credit in the financial year 2000-01 instead of 50% of credit. The respondents were entitled to utilize the balance 50% in the next financial year. No proceedings were initiated for alleged irregular availment of credit during the financial year 2000-01. So, the demand of interest under Section 11AB of the Act cannot be sustained without determination of demand of duty - appeal dismissed - decided against Revenue.

Summary

Issues:
- Incorrect utilization of Cenvat credit on capital goods
- Demand of interest under Section 11AB of the Central Excise Act, 1944
- Penalty under Section 11AC of the Act
- Interpretation of Rule 57-AC(2)(9) of the Central Excise Act, 1944
- Applicability of interest and penalty without determination of duty liability under Section 11A of the Act

Analysis:
1. The case involved the incorrect utilization of 100% Cenvat credit on capital goods by the respondents during the financial year 2000-01, instead of the entitled 50% credit in the same year and the remaining 50% in the subsequent year. A show cause notice was issued proposing a demand of interest and penalty under Sections 11AB and 11AC of the Act, respectively.

2. The Adjudicating Authority confirmed the interest amount and imposed a penalty, which was set aside by the Commissioner (Appeals), leading to the appeal by the Revenue. The Tribunal noted that the respondents were entitled to avail the entire credit on capital goods as they received parts before 1-4-2000 and installed the goods after that date, in accordance with Rule 57-AC(2)(9) of the Act.

3. Citing precedents like the Eicher Demm case and the Madura Coats Pvt. Ltd. case, the Tribunal emphasized that interest and penalty could only be imposed when there was a determination of duty evasion under Section 11A of the Act. Since no proceedings were initiated for the alleged irregular availment of credit during the financial year 2000-01, the demand of interest under Section 11AB was deemed unsustainable without a determination of duty liability.

4. The Tribunal found that the respondents had indeed availed 100% credit instead of the permissible 50% in the financial year 2000-01. However, since no action was taken for the alleged irregularity at that time, the demand of interest under Section 11AB could not be upheld without a prior determination of duty liability. Relying on previous tribunal decisions, the appeal by the Revenue was rejected, affirming the Commissioner (Appeals) order.

In conclusion, the judgment highlighted the importance of a proper determination of duty liability under Section 11A of the Act before imposing interest and penalty under Sections 11AB and 11AC, respectively. The case serves as a reminder of the legal requirements for such charges and the necessity of procedural adherence in excise matters.