2015 (5) TMI 981 - AT - Central Excise

CENVAT Credit - whether there was any malafide on the part of the assessee to avail the credit in respect of the exempted goods also - Held that - Availment was with the due knowledge of the Revenue inasmuch as the same was being reflected in their statutory records as also in returns. This was an action of ignorance on their part and not being aware of the law. Inasmuch as it was being availed with the knowledge of the Revenue by reflecting the same in the statutory records and inasmuch as they deposited the entire amount along with interest on being pointed out by the Revenue, the situation as envisaged under Section 11A (2B), would prevail. In such a scenario the Revenue should not have issued any show-cause notice - payment of interest by the appellant is in fact penal in nature and is required to be considered as a substitute for the contravention committed by them. The provisions of Section 11A (2B) actually covers such situations only. In my view the said Sections stand introduced by the Legislature so as to avoid and reduce litigation. If the Revenue is still insisting on issuing show-cause notice in such cases, the entire purpose of the said Section gets defeated. - Penalty is set aside - Appeal disposed of.

Summary

Issues:
1. Availment of credit on inputs used in manufacturing both dutiable and exempted goods without maintaining separate accounts or reversing the credit.
2. Imposition of penalty for contravention despite immediate reversal of credit and payment of interest by the appellant.

Analysis:
1. The appellants availed credit of duty paid on inputs used in manufacturing both dutiable and exempted goods without following the required procedures of maintaining separate accounts or reversing the credit for exempted goods. The Revenue pointed out this contravention in December 2006, and the appellants immediately reversed the credit of Rs. 8,85,810 along with interest of Rs. 44,986 in December 2006 and January 2007. Despite this, a show-cause notice was issued in September 2008 for imposing a penalty equivalent to the excess credit availed by the appellant.

2. The Commissioner (Appeals) relied on the Supreme Court decision in Union of India Vs. Dharmendra Textile Processors, which mandated a penalty under Section 11AC equivalent to the duty evaded. The Commissioner also cited other decisions stating that depositing the duty prior to a show-cause notice does not necessarily negate the penalty under Section 11AC. The main issue in the appeal was whether there was any malafide intent on the part of the appellant in availing the credit for exempted goods. The appellant argued that the Revenue was aware of this practice as it was reflected in statutory records and returns. They contended that their action was due to ignorance of the law, and since they rectified the error immediately upon Revenue's notification, Section 11A(2B) should apply, and no show-cause notice should have been issued.

3. The Judicial Member agreed with the appellant's argument, noting that the appellant rectified the anomaly promptly after being notified by the Revenue in December 2006. The payment of interest by the appellant was considered penal in nature and deemed a substitute for the contravention. Section 11A(2B) was seen as intended to reduce litigation, and insisting on a show-cause notice in such cases would defeat the purpose of the provision. Consequently, the penalty imposed on the appellant was set aside, and the appeal was allowed with consequential relief.