2011 (4) TMI 1097 - AT - Central Excise

Penalty - on the ground that they had availed CENVAT credit on the capital goods and claimed depreciation under Section 32 of the Income Tax Act simultaneously - appellants filed revised income tax return and reversed the depreciation claimed by them Held that - error was bonafide and there was absolutely no intention to avail or take wrong credit as soon as the omission was found remedial steps were taken without any question penalty on the appellant reduced from Rs. 5, 00, 000/- to Rs. 10, 000/-

Summary

Issues:
1. Imposition of penalty on the appellant for availing CENVAT credit on capital goods and claiming depreciation under Section 32 of the Income Tax Act simultaneously.

Detailed Analysis:
The appellant was penalized with Rs. 5,00,000 for availing CENVAT credit on capital goods and simultaneously claiming depreciation under Section 32 of the Income Tax Act. The appellant argued that the capital goods were received in prior years but installed later, and upon audit discovery, they rectified the mistake by filing revised income tax returns and reversing the depreciation claimed. The Commissioner dropped the demand for reversal of CENVAT credit, acknowledging the rectification. However, a penalty of Rs. 5 lakhs was still imposed, which the appellant deemed unwarranted due to the inadvertent nature of the error, citing precedents supporting their eligibility for CENVAT credit post-depreciation reversal.

The appellant referenced the Tribunal's decisions in the cases of Terna Shetkari SSK Ltd. and Abhishek Synthetics Pvt. Ltd. to support their argument that upon rectification, they should be entitled to the CENVAT credit. Conversely, the Departmental Representative relied on the case of W.S. Industries (India) Ltd. to assert the imposability of the penalty. The Tribunal noted that the case law cited by the appellant did not directly apply to the present scenario, emphasizing that the penalty under Rule 173QA(bb) of the Central Excise Rules, 1944, is applicable regardless of intent, distinguishing between willful wrong availment and bonafide error. The Tribunal acknowledged the remedial actions taken by the appellant upon discovering the error but upheld the imposition of a penalty, considering the circumstances.

Ultimately, the Tribunal reduced the penalty from Rs. 5,00,000 to Rs. 10,000, recognizing the bonafide nature of the error, the appellant's prompt rectification, and the absence of any deliberate intent to wrongfully avail credit. The reduction in penalty was based on the appellant's size, total excise duty payments, and the overall context of the case, concluding that a nominal penalty sufficed in light of the circumstances.