2006 (9) TMI 65 - AT - Central Excise

Cenvat/Modvat- Department alleged that appellant were utilize credit even after deciding the availment of exemption and accordingly interest were demanded- Authority allow the appeal with consequential relief.

Summary

Issues:
1. Delay in reversal of Cenvat credit leading to liability for interest and penalty.
2. Interpretation of Rule 14 of the Cenvat Credit Rules, 2004.
3. Justification for demanding interest and imposition of penalty.

Analysis:
1. The appeal was filed against the Order-in-Appeal regarding the reversal of Cenvat credit and imposition of interest and penalty. The appellants sought to avail the benefit of a notification for duty exemption on final products, which required the reversal of Cenvat credit on inputs. The Revenue claimed that the reversal was delayed, making the appellants liable for interest and penalties under the Central Excise Rules. The Commissioner upheld the lower authority's decision without proper appreciation of facts.

2. The appellants argued that they did not utilize any credit after deciding to avail the exemption, as the credit balance was adjusted before the notification date. They contended that there was no wrong availment or utilization of credit, as per Rule 14 of the Cenvat Credit Rules. The Commissioner failed to address the absence of contravention of Rule 12 (now Rule 14) and the penalty in the impugned order.

3. The Tribunal examined the records and found that the appellants had adjusted the credit balance before the notification date and reversed the remaining credit later due to lack of clarification from the Department. They clarified that no wrong utilization occurred, as Cenvat credit was not taken when final products were exempted. The Tribunal emphasized that interest is only applicable for wrong utilization, which was not the case here. The appellants' explanation for the delay was accepted, and since they had reversed the credit before the Show Cause Notice, no interest or penalty was justified. Consequently, the appeal was allowed with consequential relief.