2015 (9) TMI 1542 - AT - Central Excise

Penalty - reversal of wrongly taken CENVAT credit - respondent case is that the service tax and the interest thereon were reversed prior to issuance of SCN - Held that - there was no necessity for issuance of SCN in view of the fact that the entire cenvat credit in dispute had been reversed by the Respondent prior to initiation of the recovery proceedings by the Department. In this regard, Section 11A (2B) of the CEA, 1944 mandated that when the duty has been paid on the basis of assessee s own ascertainment, no SCN should be issued and for all statistical and practical purposes, the proceedings have to be closed - penalty set aside - appeal dismissed - decided against Revenue.

Summary

Issues:
Appeal against dropping penalty under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944.

Analysis:
The case involves an appeal by the Revenue against the dropping of a penalty imposed in an adjudication order. The appellant, engaged in manufacturing Cotton Yarn, availed cenvat credit for service tax paid on construction services for a residential complex within the factory premises. The audit wing objected to this credit, leading to its reversal by the appellant along with payment of interest. Subsequently, show cause proceedings were initiated by the Central Excise Department, resulting in an order confirming the proposals made, including the penalty. However, the Commissioner (Appeals) dropped the penalty.

The Revenue argued in support of the penalty imposition, citing the judgment in the case of UOI vs Dharmendra Textiles Processors. On the other hand, the respondent's advocate contended that the service tax and interest were reversed before the show cause notice, negating the need for penalty imposition as per Section 11A of the Central Excise Act, 1944.

The Commissioner (Appeals) noted that the cenvat amount was reversed by the respondent before the show cause notice was issued. It was found that the credit was not utilized for product clearance, and there was no fraudulent intent. The judgment emphasized that since the duty was paid before the show cause notice, penalty imposition was not in line with statutory provisions, specifically Section 11A (2B) of the Central Excise Act, 1944.

The judgment distinguished the cited case from the current scenario, highlighting the absence of fraudulent intent by the respondent. Consequently, the impugned order dropping the penalty was upheld, and the Revenue's appeal was dismissed.