2009 (2) TMI 666 - AT - Central Excise

Summary

Issues:
1. Interpretation of Transitional Provisions under Rule 9A of Cenvat Credit Rules, 2002 for Cenvat credit on grey fabrics.
2. Correct procedure for availing Cenvat credit on grey fabrics received for processing on job-work basis.
3. Applicability of interest on duty payment and rectification of errors in Cenvat Credit Register.

Issue 1: Interpretation of Transitional Provisions under Rule 9A of Cenvat Credit Rules, 2002 for Cenvat credit on grey fabrics:
The case involved M/s. Kiran Industries Ltd., engaged in manufacturing manmade fabrics and Knitted Fabrics. The appellants declared their stock of grey fabrics on 1-4-2003 to avail one-time credit under Transitional Provisions. They took credit based on the formula in Notification No. 35/2003-C.E. (N.T.). However, there was a discrepancy in availing credit on grey fabrics received for processing on job-work basis. The department objected to the method used by the appellants, leading to a dispute over the correct interpretation and application of the Transitional Provisions.

Issue 2: Correct procedure for availing Cenvat credit on grey fabrics received for processing on job-work basis:
The appellants had not taken credit on grey fabrics received for processing on job-work basis during April and May 2003. They debited only the differential duty in the Cenvat Credit Register, which was objected to by the department. The appellants explained that they rectified the error by making credit and debit entries in February 2004. The dispute centered on whether the appellants followed the correct procedure for availing Cenvat credit on grey fabrics received for processing on job-work basis and whether the subsequent rectification was in compliance with the law.

Issue 3: Applicability of interest on duty payment and rectification of errors in Cenvat Credit Register:
The department demanded interest on duty payment due to the delayed rectification of errors in the Cenvat Credit Register. The appellants argued that the error was unintentional, and they rectified it promptly once identified. The dispute involved the applicability of interest at the rate of Rs. 1,000 per day, as demanded by the department, versus the suggestion of charging interest at 2% instead. The Tribunal analyzed whether the interest levied was justified, considering the circumstances of the case and the absence of malafide intent on the part of the appellants.

In the final judgment, the Tribunal found that the appellants had substantially complied with the legal requirements, despite the procedural errors in availing Cenvat credit. The Tribunal noted that the appellants had rectified the errors in due course and that there was no actual duty liability. Consequently, the Tribunal allowed the appeal, emphasizing that the appellants were not defaulters and that penalty for contravention of rules would have been more appropriate than interest charges. The Tribunal also addressed the alternative suggestion regarding interest, holding that if leviable, it should be charged at 2% based on the circumstances of the case. The appeal was allowed with consequential relief to the appellants.