2011 (9) TMI 321 - AT - Central Excise

Wrong utilization of credit - wrong utilization of credit the penalty provisions under Rule 15(2) of the CENVAT Credit Rules, 2004 cannot be invoked unless a case of suppression, fraud etc. is established - A mere wrong utilization of credit cannot attract provisions of Rule 15(2) - Such a case, however, come under the provisions of Rule 15(1) which deals with wrong utilization of the credit in other cases i.e. in cases other than those involving suppression, fraud etc - The learned counsel for the appellant-assessee confirms that the interest amount has already been paid on 11.9.2009. Hence the penalty imposed on the appellant-assessee is reduced to ₹ 7,200/- Thus, appeal of the appellant-assessee is partly allowed by way of reduction of penalty.

Summary

Issues:
1. Utilization of CENVAT credit accrued in October 2008 for paying duty on clearances made in September 2008.
2. Imposition of penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 for wrong credit utilization.
3. Determination of penalty amount for the wrong credit utilization.

Analysis:
1. The appellant-assessee utilized CENVAT credit accrued in October 2008 amounting to Rs.71,965/- for paying duty on clearances made in September 2008. The lower appellate authority considered this utilization as a mere infringement of legal provisions rather than a default in payment of duty. It was clarified that the situation did not involve a failure to pay duty but the incorrect use of credit earned in October for September clearances, which was not permissible under the law. The judgment emphasized the distinction between non-payment of duty and improper credit utilization.

2. The Department treated the incorrect credit utilization as a default in payment, leading to an appeal. However, the judgment highlighted that penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 could not be imposed unless there was evidence of suppression or fraud. In this case, the wrong credit utilization did not fall under Rule 15(2) but under Rule 15(1) for cases of improper credit use not involving fraud or suppression. Therefore, it was deemed unnecessary to apply equal penalty in such a scenario.

3. In determining the penalty amount, the judgment considered that a penalty of about 10% of the duty amount would suffice, in addition to requiring the appellant-assessee to pay interest on the wrongly utilized sum as per Rule 14 of the CENVAT Credit Rules, 2004. It was noted that the interest amount had already been paid by the appellant-assessee. Consequently, the penalty imposed on the appellant-assessee was reduced to Rs.7,200/- from the initial amount of Rs.71,965/-. The appeal of the Department was dismissed, while the appeal of the appellant-assessee was partly allowed through the penalty reduction.

This comprehensive analysis of the judgment addresses the issues related to the utilization of CENVAT credit, imposition of penalty, and determination of penalty amount, providing a detailed understanding of the legal reasoning and outcomes involved in the case.