2011 (5) TMI 424 - AT - Central Excise

Cenvat credit - During the year 2005-06 assessee received capital goods and availed modvat credit on the same to the extent of 50%. The remaining 50% credit was availed in the subsequent year. - It is seen that capital goods cleared (for job work) in the year 2005-06 and 2006-07 were not in the possession of the appellant at the time of the second half of the cenvat credit, neither the said goods stands returned by the sister concerned unit. Accordingly, proceedings were initiated against the appellant - held that - the appellate authority has simply upheld the order of the original adjudicating authority without discussing as to how the provisions of Section 11AC or Rule 15 are applicable. He has also not discussed the applicability of Rule 25, under which penalty stands imposed upon the appellants. - Matter remanded back to commissioner (appeals)

Summary

Issues:
1. Availment of modvat credit on capital goods.
2. Non-return of capital goods within 180 days.
3. Imposition of penalty under Section 11AC.
4. Applicability of Rule 15 of Cenvat Credit Rules.
5. Appeal against penalty imposition.

Analysis:
1. The appellants availed modvat credit on capital goods under Chapter 73 and 84 of the Central Excise Tariff Act, 1985, with 50% credit in one year and the remaining 50% in the subsequent year.

2. The appellants cleared the capital goods to their sister unit for job work but failed to return them within 180 days, leading to the reversal of modvat credit amounting to Rs. 33,01,798. The original adjudicating authority confirmed the reversal, imposed interest under Section 11AB, and penalty under Section 11 AC.

3. The appellant challenged the penalty imposition before the Commissioner (Appeals), arguing that the penalty was procedural as they had reversed the credit within the required time frame. The appellant contended that Section 11AC penalty was not justified as there was no willful intent to evade duty, and Rule 15 of Cenvat Credit Rules applied only in cases of fraud or willful misstatement.

4. The Commissioner (Appeals) upheld the penalty, citing non-compliance with Rule 4(5)(a) of the Cenvat Credit Rules, which requires the return of capital goods before reutilizing the credit. However, the Commissioner did not discuss the applicability of Section 11AC, Rule 15, or the imposition of penalty under Rule 25.

5. The Appellate Tribunal set aside the Commissioner's order, remanding the matter for de novo adjudication. The Tribunal noted that the Commissioner did not address the grounds raised by the appellant, including the applicability of Section 11AC, Rule 15, and the request for a reduction in the penalty amount due to bonafide reasons. The Tribunal allowed the appeal by way of remand for a comprehensive reconsideration of the issues.

This judgment highlights the importance of procedural compliance in availing and reversing modvat credit on capital goods, as well as the necessity for thorough consideration of relevant legal provisions before imposing penalties.