2008 (12) TMI 624 - AT - Central Excise

Penalty - Cenvat/Modvat - Destruction of Cenvatted inputs (coke) by floods before inputs could be used in manufacture of final products

Summary

Issues:
- Imposition of penalty under Rule 13(2) of Cenvat Credit Rules for reversal of Cenvat credit taken on stock of coke washed away in flood before use in final products.

Analysis:
The appellant initially took Cenvat credit amounting to Rs. 7,16,718/- on a stock of coke, which was later washed away in a flood before being utilized in the manufacturing process. Upon the Department's notification, the appellant reversed the credit along with interest. However, a subsequent show cause notice was issued for confirming the demand of the reversed credit amount along with interest and imposing a penalty under Rule 13(2) of the Cenvat Credit Rules. The Assistant Commissioner confirmed the credit demand, interest, and imposed a penalty equal to the credit amount. The Commissioner (Appeal) upheld the credit demand and interest but reduced the penalty to Rs. 2,00,000/-, stating that the offense did not warrant an equal penalty. The appellant contended that the penalty was unjustified as the credit was correctly taken initially, and upon the Department's notification, it was reversed along with interest.

The appellant argued that no penalty should be imposed as the credit was validly taken, and the goods were destroyed before use, leading to the reversal of credit upon notification by the Department. The Departmental Representative contended that the appellant should have intimated the Department and reversed the credit when the goods were lost in the flood, rather than doing so only after being notified. The Tribunal's judgments in similar cases were cited by both parties to support their arguments.

After considering the submissions, the judge noted that the credit was correctly taken at the receipt of the inputs, which were subsequently destroyed before use. The judge highlighted that although the loss was not intimated to the Department initially, the credit was reversed with interest upon notification. Referring to the Tribunal's precedent in a similar case, it was held that no penalty should be imposed when the credit was correctly taken and later reversed upon Department's notification. The judge distinguished the judgments cited by the Departmental Representative, emphasizing that they were not directly relevant to the penalty imposition issue. Consequently, the part of the order upholding the penalty was set aside, and the appeal was allowed.

In conclusion, the judgment emphasized the importance of correctly taking and reversing Cenvat credit in cases of input loss before utilization, highlighting the precedent that penalty imposition is not warranted in such circumstances.