2010 (9) TMI 393 - HC - Central Excise

Penalty cenvat credit - benefit of Notification No. 50/2003-C.E availed - it is not necessary for the Revenue to prove mens rea for imposing penalty u/s 11AC - Avoidance of tax by tax planning is not illegal - If due to certain judicial pronouncements assessee becomes liable it cannot be said that penalty must be imposed on the assessee - no substantial question of law - appeal is dismissed

Summary

Issues:
- Challenge to order imposing penalty for non-reversal of CENVAT credit
- Interpretation of legal provisions regarding imposition of penalty
- Consideration of mens rea in imposing penalty
- Judicial precedents on penalty imposition in tax evasion cases

Analysis:
1. The appellant challenged an order imposing a penalty for not reversing the CENVAT credit, arguing against the intention to evade payment of excise duty. The Tribunal held that since the issue of reversing CENVAT credit was disputed in various cases, it could not be concluded that the appellant intentionally sought to evade tax.

2. The undisputed facts revealed that the appellant availed benefits under a specific notification, leading the department to demand reversal of credits related to inputs held in stock before the notification's effect. The appellant complied by depositing the claimed amount after the department's advice. Subsequently, a notice was issued for potential penalty imposition.

3. The assessing authority initially dropped the show cause notice, but the Revenue appealed, contending that the appellant's failure to reverse the CENVAT credit until informed of its liability justified a penalty equal to the tax payable. However, the Tribunal found that the situation involved interpretation of legal provisions, precluding penalty imposition.

4. The appellant's counsel cited a relevant decision to support their case, emphasizing the importance of legal precedents in determining penalty imposition in excise duty matters.

5. While acknowledging that mens rea need not be proven for penalty under the Central Excise Act and CENVAT Credit Rules, the Court highlighted that penalty imposition should consider whether the assessee attempted to avoid or evade tax. Legal tax planning to avoid tax is lawful, and liability due to judicial rulings does not automatically warrant penalty imposition. The Court emphasized that the decision to impose a penalty is a factual determination, as established in previous cases, and dismissed the appeal for lack of substantial legal questions.