2011 (4) TMI 985 - AT - Central Excise

Penalty - Cenvat credit - Joint Commissioner by his order disallowed the modvat credit - suppression of fact - wrong utilization of cenvat credit - appellant themselves state that credit was availed on the inputs in question and was utilized prior to January 1998. Till March 2000 the factory of the Appellants remained closed. During this period the concerned inputs were destroyed. Being so undisputedly it was necessary for the Appellants to reverse the credit. Admittedly even after re-commencement of the factory of the Appellant no steps were been taken by the appellants to reverse the credit or repay the amount - Held that - once it was known to the appellant that the goods on which credit was taken such inputs could not be utilized in terms of the Rules for manufacture of final product the appellant was aware that from that point of time that such utilization of credit was rendered wrongful it cannot be aid that the appellants were not guilty of suppression of fact. In the case of Punjab Communication case and in Kalayni Brakes this aspect arose for consideration no infirmity in the order passed by the Commissioner appeal is dismissed

Summary

Issues Involved:
1. Imposition of penalty for wrongful availment or utilization of modvat credit.
2. Suppression of facts regarding the destruction of inputs and non-reversal of credit.

Issue-wise Detailed Analysis:

1. Imposition of penalty for wrongful availment or utilization of modvat credit:

The appeal arose from an order confirming the disallowance of modvat credit amounting to Rs. 11,61,660/- and the imposition of an equal amount of penalty. The appellants challenged the penalty aspect, arguing that the inputs were in existence when the credit was utilized, hence there was no wrongful availment or utilization. They relied on Rule 57-I(4) and Rule 57-AH(2) of the Central Excise Rules, 1944, and cited precedents like Kalyani Brakes Ltd. v. CCE and Punjab Communications Ltd. v. CCE to support their claim that there was no fraud, misrepresentation, or suppression of facts warranting a penalty.

The Tribunal examined the provisions under Rule 57-I, Rule 57-AH, and Rule 13 of the Cenvat Credit Rules, 2001, which deal with the recovery of credit wrongly availed or utilized and the imposition of penalties. The Tribunal noted that these rules provide for penalties in cases of fraud, willful misstatement, collusion, or suppression of facts with the intention to evade duty. The Tribunal referred to the case of Timex Watches Ltd. v. CCE, which clarified that modvat credit should not be denied if inputs become waste during the manufacturing process. However, if inputs are destroyed or rendered unusable otherwise, the credit must be reversed.

2. Suppression of facts regarding the destruction of inputs and non-reversal of credit:

The Tribunal found that the appellants did not disclose the utilization of the credit prior to January 1998 until the investigation began. The balance sheets disclosed the disposal of raw materials but did not reveal the utilization of the credit for payment of duty on final products. The Tribunal held that the appellants had an obligation to reverse the credit once the inputs were destroyed and failed to comply with this requirement, constituting suppression of facts.

The Tribunal rejected the appellants' argument that there was no suppression since the destruction of inputs was disclosed in the balance sheet. The Tribunal emphasized that suppression occurs when there is a failure to disclose an obligation. The appellants' factory remained closed from January 1998 to March 2000, and even after reopening, no steps were taken to reverse the credit. The Tribunal concluded that the appellants were aware that the credit became ineligible once the inputs were destroyed, and their failure to reverse the credit amounted to wrongful utilization.

Conclusion:

The Tribunal found no infirmity in the order passed by the Commissioner, confirming the imposition of penalty. The appeal was dismissed, and the Tribunal upheld the penalty for wrongful availment and utilization of modvat credit due to suppression of facts and failure to reverse the credit after the destruction of inputs. The judgment emphasized the importance of compliance with the rules and the obligation to reverse credit in cases where inputs become unusable.