2010 (9) TMI 388 - HC - Central Excise

Suspending CENVAT credit facility - Evasion of duty Deterrent action cenvat credit fraud excess cenvat credit taken - due to the change in staff attending Central Excise CENVAT credit work, there was duplication in the entry of credit of Rs. 176.27 lakhs, which is also reflected in the monthly ER-1 returns - discovery of mistake by the departmental officials - according to the petitioner it has happened inadvertently, there is an admission of fact by paying the duty subsequently by the petitioner to the tune of Rs. 1,76,26,524/- - evasion of duty was found and the double credit transaction was utilised from their sister concern, which is situated in the same premises - order passed as per Notification No. 32/2006 cannot be sustained - order passed to deter the assessee from indulging in such kind of evasion in future for the mistake committed, which was found by the Department and not by the assessee itself Mistake not inadvertent as duty not paid voluntarily Order contain valid reasons for imposing restrictions for limited period, sustainable

Issues Involved:
1. Suspension of CENVAT credit facility.
2. Alleged duplication of CENVAT credit entries.
3. Mens rea and the requirement for intentional wrongdoing.
4. Procedural adherence under Notification No. 32/2006-C.E. (N.T.).
5. Premature action by the department before adjudication.
6. Principles of natural justice.

Detailed Analysis:

1. Suspension of CENVAT Credit Facility:
The petitioner sought to quash the order dated 19-7-2010, which suspended the CENVAT credit facility from 22-7-2010 to 15-10-2010. The petitioner argued that the suspension was unjustified as there was no intentional wrongdoing.

2. Alleged Duplication of CENVAT Credit Entries:
The petitioner admitted that due to a staff change, there was a duplication in the entry of credit amounting to Rs. 176.27 lakhs between October 2008 and December 2008. The error was discovered by departmental officials on 4-12-2009, and the petitioner subsequently paid the amount in question.

3. Mens Rea and the Requirement for Intentional Wrongdoing:
The petitioner contended that there was no mens rea (intentional wrongdoing) involved, which is a sine qua non (essential condition) for imposing deterrent measures under Notification No. 32/2006. The petitioner argued that the mistake was inadvertent and not intentional.

4. Procedural Adherence under Notification No. 32/2006-C.E. (N.T.):
The respondents argued that the suspension of the CENVAT credit facility was justified under Rule 12AA of the CENVAT Credit Rules, 2004, and Rule 12CC of the Central Excise Rules, 2002. They stated that the petitioner had availed credit twice on the same input invoices, which was discovered through specific intelligence and verification by the Head Quarters Preventive Unit of Puducherry Central Excise Commissionerate. The Chief Commissioner of Central Excise, Chennai, after considering the evidence and submissions, recommended action under Notification No. 32/2006.

5. Premature Action by the Department Before Adjudication:
The petitioner argued that the impugned order was premature since the adjudication pursuant to the show cause notice issued on 30-12-2009 was still pending. The petitioner claimed that there was no revenue loss to the government as the wrong credit remained unutilized.

6. Principles of Natural Justice:
The petitioner contended that the impugned order violated the principles of natural justice. The respondents, however, maintained that the procedural requirements under Notification No. 32/2006 were followed, including issuing a show cause notice, conducting a personal hearing, and considering the petitioner's written submissions.

Judgment Analysis:
The court examined the facts and submissions from both sides. It noted that the petitioner had admitted to the duplication of credit and had paid the duty subsequently. The court found that the respondents had followed the procedures under Notification No. 32/2006 and had provided the petitioner with an opportunity to be heard. The court also referred to previous judgments, including the unreported decision in W.P. No. 4764 of 2010, which upheld similar restrictions imposed under Notification No. 32/2006.

The court concluded that the restrictions imposed were necessary to ensure statutory compliance and prevent future duty evasion. The impugned order was deemed a deterrent measure rather than a punitive one. The court dismissed the writ petition, finding no merit in the petitioner's arguments and upholding the validity of the impugned order.

Conclusion:
The writ petition was dismissed, and the suspension of the CENVAT credit facility for the specified period was upheld. The court emphasized the importance of procedural adherence and the necessity of deterrent measures to ensure compliance with excise laws.

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