2007 (4) TMI 70 - AT - Central Excise

Cenvat/Modvat- Appellant contended that bed-sheets and blankets are inputs and accordingly availed cenvat credit on it - Department contended that the said input is final products and not entitle for cenvat credit and accordingly demand were made alongwith penalty - Held that the department contention was correct

Summary

Issues:
Challenge to disallowance of Cenvat credit and imposition of penalty under Rule 13.

Analysis:
The appellant contested the disallowance of Cenvat credit and imposition of a reduced penalty under Rule 13 by the Commissioner (Appeals). The Assistant Commissioner had initially disallowed the credit and ordered its recovery under Rule 12, along with a penalty under Rule 13 and Rule 25. The appellant argued that registered dealers in the textile sector could pass on higher credit, subject to payment as per sub-rule (1) to Rule 3. They also contended that the goods in question should have been treated as goods as such, allowing the credit to pass on. The appellant further claimed that the penalty imposed was unjustified, considering it a procedural lapse that should be condoned since the credit was reversed.

The Department's representative supported the lower authorities' decision, stating that the Cenvat credit was rightly disallowed because the appellant had not engaged in any manufacturing process on the goods in question, namely bed sheets and blankets. It was found that the knitted fabric, the final product, did not undergo any manufacturing activity, making the credit wrongly availed and utilized. The appellant's argument that even dealers could pass on higher credit in the textile sector was dismissed, as the appellant was registered as a manufacturer, not a dealer.

The Commissioner (Appeals) upheld the disallowance of the Cenvat credit, noting that the goods in question were final products themselves and did not qualify as "inputs" for credit. The appellant's status as a manufacturer, not a dealer, was emphasized, and the plea regarding passing on higher credit in the textile sector was rejected. The penalty amount was reduced from Rs. 1,06,034 to Rs. 25,000, considering it a procedural lapse.

The Tribunal found that the goods on which the Cenvat credit was claimed were not used in or related to the manufacture of the final product, as no manufacturing activity was conducted on them. The appellant's assertion that the goods were inputs was refuted, as they were final products like bed sheets and blankets, not intended for further manufacturing. The disallowance of the credit and the recovery order were deemed correct, as the credit had been reversed. The penalty amount equivalent to the disallowed credit was reduced to Rs. 25,000 by the Commissioner (Appeals).

Regarding the penalty, the show cause notice alleged wrongful availing/utilization of the Cenvat credit, proposing penalties under Rule 13 of the Cenvat Credit Rules and Rule 25 of the Central Excise Rules. The Tribunal clarified the dual penalty scheme under Rule 13, distinguishing between penalties for mere contraventions and those involving fraud or intent to evade duty. Since there was no allegation of a guilty mind, the penalty could only be imposed under Rule 13(1), with a minimum prescribed penalty of Rs. 10,000. Considering the circumstances and the reversal of the wrongly availed duty, the penalty was reduced to Rs. 10,000, serving the ends of justice.

In conclusion, the Tribunal confirmed the lower order, reducing the penalty to Rs. 10,000 and disposing of the appeal accordingly.