2010 (8) TMI 428 - AT - Central Excise

Penalty - Modvat credit - Capital goods - Credit was availed by the appellants prior to commissioning of the plant - The credit was reversed within 15 days from the date of intimation in that regard by the Department to the appellants - There was no occasion for the appellants to utilize the credit, so availed, and, in fact, they had not utilized the same till they availed the said credit lawfully after installation of the capital goods. Held that records clearly disclose total absence of mal-intention or intention to avail and utilize the credit in contravention of the provisions of law - the provisions regarding requirement of imposition of penalty are not attracted and hence the authorities below erred in imposing the penalty - The penalty imposed against the appellants quashed.

Summary

Issues:
Challenge to penalty imposition under Rule 173Q based on availing Modvat credit before installation of capital goods.

Analysis:
The appellants challenged the penalty imposed under Rule 173Q by the Commissioner (Appeals) for availing Modvat credit before the installation of capital goods. The appellants, engaged in manufacturing excisable goods, had procured capital goods entitled to Modvat credit. They sought to avail credit worth Rs. 1,76,98,411.74 before the installation of capital goods, which was irregular. Upon inspection, the Excise Department noticed this and the appellants voluntarily reversed the credit on 14-7-1998 with the intention to avail it lawfully after installation. The lower authority found the reversal sufficient and did not impose a penalty. However, the Department appealed, leading to the Commissioner (Appeals) imposing a penalty of Rs. 50 lacs against the appellants and upholding a penalty against the Manager.

The Commissioner (Appeals) relied on Rule 173Q(1)(bb) to justify the penalty, stating that taking credit before commissioning the plant is irregular and warrants a penalty. The appellants argued that they rectified the irregularity promptly, reversing the credit within 15 days of being informed by the Department. The records showed no intention to misuse the credit unlawfully. The Commissioner (Appeals) acknowledged the reversal but still imposed the penalty, leading to the appeal before the Appellate Tribunal.

The Tribunal analyzed the provisions of Rule 57Q(7) and Rule 173Q(1)(bb) governing the situation. It noted that the appellants' actions, though irregular, did not demonstrate any mal-intention or attempt to misuse the credit unlawfully. The Tribunal concluded that the penalty provisions were not applicable in this case due to the absence of intentional wrongdoing. Therefore, the Tribunal allowed the appeal, quashed the penalties imposed on the appellants and the authorized signatory, and disposed of the matter accordingly.