2009 (5) TMI 760 - AT - Central Excise

Demand and penalty - Cenvat/Modvat credit - Removal of inputs to sister unit - Held that - The situation was revenue neutral as the sister unit of respondents could have availed credit of the duty had the respondents paid it at the time of removal of inputs. Therefore, intention to evade duty could not be attributed, nor larger period invoked under Section 11A, penalty imposed under Section 11AC and interest demanded under Section 11AB - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
- Appeal against vacating a demand under Central Excise Act, 1944
- Imposition of penalty under Section 11AC and Rule 173Q
- Demand of interest under Section 11AB
- Voluntary payment of duty before Show Cause Notice
- Revenue-neutral situation due to credit availed by sister unit
- Application of Tribunal's decision in Jay Yuhshin Ltd. v. CCE, New Delhi

Analysis:

1. Vacating the Demand and Imposition of Penalties:
The appeal was filed by the Revenue against the order of the Commissioner (Appeals) vacating a demand of Rs. 13,22,608/-, along with penalties under Section 11AC and Rule 173Q of the Central Excise Act, 1944. The original authority had also imposed an additional penalty of Rs. 1,30,000/- under Rule 173Q. The duty in question was voluntarily paid before the issuance of the Show Cause Notice. The demand was related to the credit availed by the appellant on certain inputs received at one unit and not reversed upon transfer to another unit. The Commissioner (Appeals) vacated the demand and penalties, citing a Tribunal decision in a similar case. The Revenue contended that the voluntary payment of duty did not justify setting aside the penalties imposed under Section 11AC and Rule 173Q.

2. Interest Demand Under Section 11AB:
Apart from the demand and penalties, interest of Rs. 56,492/- was also imposed under Section 11AB of the Act. The Revenue argued that the interest should not have been vacated due to the voluntary payment made by the assessee. However, the Commissioner (Appeals) based the decision on the principle of revenue neutrality, as the sister unit could have availed the credit if the duty had been paid at the time of input transfer. This situation indicated no intention to evade duty, hence penalties and interest were not justified.

3. Application of Tribunal's Decision and Final Judgment:
The Tribunal noted that the impugned order followed a Larger Bench decision reported in 2000, which established the revenue-neutral nature of the situation. The Tribunal found that the Commissioner (Appeals) correctly applied the Tribunal's decision in the present case. The Revenue failed to demonstrate how the Tribunal's decision was inapplicable to the facts at hand. Consequently, the Tribunal upheld the impugned order, ruling that no interference was necessary. The appeal filed by the Revenue was rejected as lacking merit.

In conclusion, the Tribunal upheld the decision of the Commissioner (Appeals) to vacate the demand, penalties, and interest, based on the principle of revenue neutrality and the application of relevant legal precedents.