2011 (1) TMI 1008 - AT - Central Excise

Cenvat credit - Penalty under section 11C - respondent had issued debit notes to their supplier of inputs on account of rejection of inputs against which they have availed CENVAT credit - Held that - As the appellant have not challenged the confirmation of demand on the basis of suppression of facts. Therefore, the mandatory penalty under Section 11AC is imposable. As regards the cross-objection filed by the respondent is concerned, the same has not been filed within the time limit prescribed, therefore, the same has to be rejected as such. The Commissioner (Appeals) order setting aside the penalty under Section 11AC is not sustainable and hence, set aside to the extent. As regards the contention of the respondent that since they have already paid the entire amount of duty involved in the case before the issuance of the show-cause notice they are liable to pay only 25% of the duty amount as penalty in view of the judgment of the Hon ble Delhi High Court in the case of K.P. Pouches (P) Ltd. vs. Union of India (2008 (1) TMI 296 - HIGH COURT OF DELHI) - As this judgment of the Hon ble Delhi High Court and to give option to the respondent was not before the lower authorities case is remanded to the lower adjudicating authority for the limited extent to decide the quantum of penalty under Section 11AC.

Summary

Issues:
- Appeal against Order-in-Appeal upholding duty confirmation but setting aside penalty under Section 11AC
- Interpretation of mandatory penalty under Section 11AC as per Supreme Court judgments
- Filing of Cross-Objection by respondent challenging the correctness of the order
- Dispute over imposition of penalty based on duty payment before show-cause notice issuance

Analysis:
1. The appeal concerned the confirmation of duty and the setting aside of the penalty under Section 11AC by the Commissioner (Appeals) in relation to the issuance of debit notes by the respondent against rejected inputs for which CENVAT credit was availed. The Revenue contended that the penalty under Section 11AC should be imposed as per Supreme Court judgments mandating its imposition regardless of duty payment before the show-cause notice.

2. The respondent filed a Cross-Objection challenging the correctness of the order, arguing that there was no suppression of facts as they promptly paid the differential amount when defects in the credit were pointed out. They relied on a Bombay High Court decision to support their stance that penalty should not be imposed in the absence of suppression regarding CENVAT credit reversal.

3. The Revenue argued that the respondent's Cross-Objection was not filed within the prescribed time limit, and therefore, should not be considered. They emphasized the mandatory nature of the penalty under Section 11AC based on the Supreme Court's interpretation, which leaves no room for discretion even if duty is paid before the show-cause notice.

4. The Tribunal analyzed the case, noting that the respondent paid the duty without disclosing it to the department, leading to the issuance of a show-cause notice for suppressing the rejection of inputs. The Commissioner (Appeals) set aside the penalty under Section 11AC based on a precedent, but the Tribunal found that the Supreme Court's judgments mandated the imposition of the penalty in cases of proven suppression.

5. The Tribunal remanded the case to the lower adjudicating authority to determine the penalty under Section 11AC, considering a Delhi High Court judgment allowing for a reduced penalty if duty was paid before the notice. The respondent was granted a hearing opportunity, and the appeal was disposed of by way of remand, with the Cross-Objection also addressed accordingly.