2011 (3) TMI 564 - AT - Central Excise

Reversal of Cenvat credit - Penalty u/s 11AC - whether the Appellant had intention to evade the duty involved in the obsolete inputs and whether for imposing penalty under Section 11AC of the Central Excise Act intention to evade duty is required to be established - By no stretch of imagination it can be considered necessary as per Central Excise Rules or Cenvat Credit Rules that credit should be reversed immediately when an employee of an assessee notices defect in input and it is reported to his superior or the departmental head, in charge of stores - A short delay (no such delay is proved in this case) can not imply that there was an intention to evade duty by not reversing the credit taken on the input. - Appeal is allowed

Summary

Issues:
1. Availing Cenvat credit on rejected inputs.
2. Imposition of penalty under Section 11AC of the Central Excise Act.
3. Requirement of proving intention to evade duty for penalty imposition.

Analysis:
1. The Appellants availed Cenvat credit on certain inputs which were later rejected by the quality control store department. The Central Excise Officers directed the reversal of such credit, alleging an intention not to reverse it. The Appellants contested this, stating they reversed the credit ahead of the due date as instructed. The department issued a show cause notice proposing penalty under Section 11AC, which was initially allowed by the Commissioner (Appeal) and later confirmed upon reconsideration. The Appellants challenged this penalty imposition.

2. The department argued that the credit reversal was prompted only after detection by officers, indicating evasion intention. The Commissioner (Appeal) relied on precedents and held that mens rea is not essential for imposing penalty under Section 11AC. The main contention revolved around whether the Appellants had the intention to evade duty by not reversing the credit on time.

3. The Tribunal analyzed the legal provisions under Section 11AC, emphasizing the requirement to prove fraud, collusion, willful misstatement, or suppression of facts for penalty imposition. The Tribunal noted that the Appellants' internal control process identified unusable inputs, and there was no evidence suggesting an intention to evade duty. The delay in reversing the credit did not necessarily imply evasion intent, as organizations follow protocols for writing off obsolete inputs. Ultimately, the Tribunal found the Commissioner (Appeal) had erred in appreciating the facts and law, leading to the order being set aside and the appeal being allowed with any consequential reliefs.

This detailed analysis of the judgment highlights the issues surrounding availing Cenvat credit on rejected inputs, the imposition of penalty under Section 11AC, and the necessity of proving intention to evade duty for penalty imposition. The Tribunal's decision focused on the legal provisions, the circumstances of the case, and the lack of evidence supporting an intention to evade duty, ultimately leading to the appeal being allowed.