2014 (6) TMI 940 - AT - Central Excise

Cenvat credit reversal - Held that - As in the facts and circumstances, it is more a case of interpretation of the legal statute and no case is made out of any suppression, fraud or disregard to the provisions of law. The appellant-assessee, without any protest immediately reversed the Cenvat credit on being so pointed out to at the first opportunity, almost 20 months before issuance of the show cause notice. In this view of the matter, in the interest of justice, set aside the imposition of penalty and interest sustained vide the impugned order, but under the facts and circumstances, amount of Cenvat credit reversed is upheld and the same stands confirmed.

Summary

Issues Involved:
- Availment of Cenvat credit on capital goods
- Incorrect claim of depreciation on plant and machinery
- Reversal of Cenvat credit by the assessee
- Show cause notice issued by the Revenue
- Imposition of penalty and interest
- Appeal before the Commissioner (Appeals)
- Reduction of penalty by the Commissioner (Appeals)
- Appeal against penalty and interest

Analysis:

Availment of Cenvat credit on capital goods:
The appellant, a sugar factory, availed Cenvat credit on capital goods in two financial years. However, it was observed during an audit that when claiming depreciation on plant and machinery under the Income Tax Act, the appellant reduced only 50% of the duty element instead of the total amount of duty on such capital goods as required by the Cenvat Credit Rules. This led to the incorrect availing of Cenvat credit, which was deemed liable for reversal under Rule 4(4) of the Cenvat Credit Rules.

Incorrect claim of depreciation on plant and machinery:
The appellant claimed depreciation on the balance of Cenvat credit availed on capital goods, which was deemed incorrect as per the Cenvat Credit Rules. The Revenue issued a show cause notice to disallow the Cenvat credit and imposed penalties and interest for the alleged contravention of the rules.

Reversal of Cenvat credit by the assessee:
Upon realizing the mistake pointed out by the department, the appellant promptly reversed the entire amount of Cenvat credit in their account. The appellant contended that the error was inadvertent and due to a misunderstanding of the provisions of law, and there was no fraudulent intent or contumacious conduct on their part.

Imposition of penalty and interest:
The adjudicating authority confirmed the demand for reversal of Cenvat credit, citing contravention of the Cenvat Credit Rules. The authority also imposed penalties and interest, alleging suppression on the part of the assessee. The Commissioner (Appeals) reduced the penalty amount but sustained a portion of it, leading to appeals from both the appellant and the Revenue.

Appeal before the Commissioner (Appeals) and reduction of penalty:
The appellant appealed before the Commissioner (Appeals), who reduced the penalty amount but upheld the interest and a portion of the penalty. The appellant contested the upheld amounts, while the Revenue appealed against the reduction in penalty.

Final Judgment:
The appellate tribunal found that the case primarily involved an interpretation of the legal statute rather than any fraudulent or suppressive conduct. Considering that the appellant promptly rectified the error upon notification, the tribunal set aside the imposition of penalty and interest. However, the reversal of Cenvat credit was upheld, leading to the allowance of the appellant's appeal and the dismissal of the Revenue's appeal.