2008 (10) TMI 551 - AT - Central Excise

Summary

Issues: Appeal against demand of interest and penalty on credit taken by appellant on capital goods not utilized.

The judgment deals with an appeal against the demand of interest and imposition of penalty on credit taken by the appellant on capital goods that were not utilized. The appellant had mistakenly taken full credit instead of 50% credit on some capital goods in the financial year 2003-04. The appellant reversed the credit before the show cause notice was issued. The lower authorities confirmed the charging of interest and imposed a penalty of Rs. 5 lakh. The appellant argued that since the credit was taken by mistake and not utilized at all, interest should not be charged, and penalty should not be imposed. The appellant relied on the decision of the Punjab & Haryana High Court in the case of Maruti Udyog Ltd., where it was held that if credit taken but not utilized is not admissible, then interest cannot be charged. This decision was upheld by the Supreme Court. The Tribunal also referred to the decision in Ind-Swift Ltd., where it was held that penalty is not imposable when credit is taken on inputs but not utilized. Based on these precedents, the Tribunal set aside the interest and penalty, allowing the appeal.

In this case, the main issue was whether interest and penalty could be imposed on the appellant for mistakenly taking full credit on capital goods that were not utilized. The appellant argued that since the credit was not utilized and was taken by mistake, interest should not be charged, and penalty should not be imposed. The Tribunal, following the decisions of the Punjab & Haryana High Court and the Supreme Court, held that if credit taken but not utilized is not admissible, interest cannot be charged. Additionally, based on the decision in Ind-Swift Ltd., the Tribunal concluded that penalty is not imposable when credit is taken but not utilized. Therefore, the Tribunal set aside the interest and penalty, allowing the appeal.

The judgment also highlighted the importance of the appellant's actions in reversing the credit before the show cause notice was issued. This demonstrated the appellant's intention to rectify the mistake and showed that the credit was not utilized. The Tribunal considered this factor along with the legal precedents cited by the appellant to support its decision to set aside the interest and penalty. By referencing the decisions of the Punjab & Haryana High Court, the Supreme Court, and the Tribunal in previous cases, the Tribunal provided a solid legal basis for its ruling in favor of the appellant.