2011 (7) TMI 276 - AT - Central Excise

Penalty - Debarment orders - Since, credit which was deferred by the original authority is deemed to have been restored after two months - Therefore, the demand of duty on the ground that there was restriction in use of the credit for two months would lead to double payment of duty by the respondents - Therefore, allow the credit to be adjusted towards dues at the time of clearances of final products,direct the respondents to pay interest for the period of the months in each case - In other words, once the interest is paid, the credit denied shall stand restored and regularized towards duty due at the time of clearance of the products - Since there is clear violation of utilization of credit contrary to the debarment orders issued under the Central Excise Rules, held that the respondent is liable to penalty - Decided against the assessee.

Summary

Issues:
Appeal against Commissioner (Appeals) order regarding deemed credit utilization and penalty imposition under Central Excise Rules.

Analysis:
The case involved the department appealing against the Commissioner (Appeals) order regarding the utilization of deemed credit and penalty imposition under the Central Excise Rules. The respondents were engaged in processing fabrics falling under specific chapter headings and were eligible for deemed credit as per notifications. The defaults in payment led to debarment orders by the Assistant Commissioner, restricting credit utilization for specific periods. The original authority confirmed demands and imposed penalties for contravention of rules. The Commissioner (Appeals) set aside the original authority's order, leading to the department's appeal.

The department argued that due to default in duty payment, debarment orders were valid, and credit utilization during debarment was not permissible. On the other hand, the respondents contended that deemed credit treatment differs from other credits, becoming available only at final product clearance. They argued that the debarment period allowed credit restoration after two months and no penalty should be imposed.

Upon careful consideration, the Tribunal noted the defaults and unauthorized credit utilization during debarment. It acknowledged that the deemed credit was typically available at final product clearance and deemed the credit restored after the debarment period. To avoid double duty payment, the Tribunal allowed credit adjustment towards dues at product clearance, with interest payable for the debarment period. Despite restoring the credit, the Tribunal held the respondents liable for penalty due to clear credit utilization violations.

In light of the case's circumstances, the Tribunal upheld the penalty imposition but reduced it to Rs.1 lakh. The appeal was disposed of with the direction for interest payment during the debarment period and the reduced penalty amount.