2009 (12) TMI 762 - AT - Central Excise

Summary

Issues involved: Appeal against setting aside of penalty under Section 11AC.

Issue 1: Interpretation of Cenvat Credit Rules and Income-tax Act

The respondent raised excess Cenvat credit on capital goods and claimed depreciation under Section 32 of Income-tax Act, 1961. Rule 4(4) of Cenvat Credit Rules, 2002 specifies that Cenvat credit for capital goods cannot be allowed if depreciation is claimed under Section 32 of the Income-tax Act. The Audit party pointed out the error, leading the respondent to reverse the credit with interest. A show-cause notice was issued for interest and penalty. The appellate authority upheld the interest demand and imposed a penalty. The Commissioner (Appeals) later allowed the respondent's appeal against the penalty imposition. The Revenue appealed against this decision.

Issue 2: Application of Penalty under Section 11AC

The learned SDR argued citing the case of Union of India v. Rajasthan Spinning & Weaving Mills that when duty is confirmed, the mandatory penalty under Section 11AC must also be confirmed. However, upon review, it was found that the excess Cenvat credit was due to an incorrect interpretation of the law, with no malicious intent to evade duty. Consequently, the penalty under Section 11AC was deemed inapplicable. The impugned order was upheld, and the Revenue's appeal was rejected.