2013 (7) TMI 337 - AT - Central Excise

Rule 4(4) of Cenvat Credit Rules,2004 - Simultaneous availment of CENVAT credit and claiming of depreciation Cenvat Credit taken by appellant was rectified while filing income tax returns for the subsequent financial years - Contravention of Rule 4(4) of the CENVAT Credit Rules 2004 was undone and therefore the denial of the entire CENVAT credit taken on the capital goods is unjustified Held that - Appellant has not cared to produce any income tax assessment order to substantiate the plea of rectification of the so-called mistake Appellant were acting in blatant contravention of the mandate of Rule 4(4) as rightly held in the case of Yee Kay Technocrat (P) Ltd., Vs. Commissioner of Central Excise, Delhi-IV 2011 (1) TMI 544 - CESTAT, NEW DELHI . Such contravention of the Rule cannot be nullified by any corrective measures taken before Income Tax authorities - The complicated procedure adopted by the appellant - Credit wrongly availed, to be denied Decided against the Assessee. Limitation Extended period to be invoked - Show-cause notice invoked Rule 15 of the CENVAT Credit Rules 2004 read with Section 11AC of the Central Excise Act Show cause Notice did not allege any of the ingredients of Rule 15(2) in support of the proposal for penalizing the party Held that - It appeared that appellant misunderstood the mandate of Rule 4(4) of the CENVAT Credit Rules 2004. The party appears to have thought that the CENVAT credit taken by them could be maintained by taking corrective action before the Income Tax Authorities in subsequent years. The facts of this case do not disclose any mens rea, for the purpose of penalizing the party. Sub-rule (2) of Rule 15 was not specifically invoked in the show-cause notice. Penalty under Rule 15 read with Section 11AC do not sustain on appellant Extended period not allowed - Decided in favor of Assessee.

Summary

Issues:
Denial of CENVAT credit and imposition of penalty based on contravention of Rule 4(4) of the CENVAT Credit Rules 2004.

Analysis:

Denial of CENVAT Credit:
The appellant's appeal was against the denial of CENVAT credit amounting to Rs.2,72,913/- for the period from 2005-06 to 2007-08. The denial was based on the contravention of Rule 4(4) of the CENVAT Credit Rules 2004. The appellant had taken CENVAT credit on capital goods received in different years but failed to deduct the entire amount of duty paid on these goods for claiming depreciation under the Income Tax Act. The appellant only deducted 50% of the duty paid in the year of receipt of the goods, and this practice continued in subsequent financial years. The department issued a show-cause notice alleging suppression of facts and invoked the extended period of limitation to deny the CENVAT credit. The appellant contested these allegations, citing rectification of the mistake while filing income tax returns for subsequent years. However, the adjudicating authority upheld the denial of CENVAT credit. The Commissioner (Appeals) also ruled against the appellant, leading to the present appeal.

Penalty Imposition:
The show-cause notice proposed a penalty on the appellant under Rule 15 of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act. The appellant argued that there was no suppression of facts with intent to avail undue CENVAT credit and that the clerical mistake was promptly rectified upon notification by the department. The Dy. Commissioner (A.R.) contended that the appellant's actions contravened Rule 4(4) and that any corrective action taken later did not nullify the violation. The Dy. Commissioner also supported the penalty imposition under Rule 15(2) of the CENVAT Credit Rules. However, the appellant disputed the applicability of Rule 15(2) in this case, claiming that the show-cause notice did not allege the necessary ingredients for imposing the penalty.

Judgment:
The Tribunal found that the appellant had wrongly availed CENVAT credit while simultaneously claiming depreciation for income tax purposes, contrary to Rule 4(4) of the CENVAT Credit Rules 2004. The denial of CENVAT credit was upheld based on the appellant's failure to deduct the entire duty paid on capital goods for claiming depreciation. However, regarding the penalty, the Tribunal noted that the show-cause notice did not specifically invoke Rule 15(2) and did not establish mens rea for penalizing the appellant. Considering the circumstances, the penalty was set aside. Therefore, the denial of CENVAT credit was sustained, but the penalty was revoked, resulting in the partial allowance of the appeal.