2013 (8) TMI 155 - AT - Central Excise

Rule 3(7)(a) of the Cenvat credit Rules Mistake in application of formula under Rule 3(7)(a) of the Cenvat Credit Rules Held that - This is not a case where the appellant have availed Cenvat credit of entire amount of duty paid by the 100% EOU in respect of DTA clearance without applying the conversion formula prescribed in Rule 3(7)(a) - The appellant in this case had calculated the admissible Cenvat credit by applying the prescribed formula but according to the department their method of calculation is incorrect - when in respect of another period, the Commissioner (Appeals) has held there was no suppression, Penalty can not be imposed - Decided in favor of Assessee.

Summary

Issues: Calculation of Cenvat credit for inputs received from 100% EOU, imposition of penalty under Rule 15(2) of Cenvat Credit Rules.

Analysis:

The judgment revolves around the calculation of Cenvat credit for inputs received from a 100% EOU and the imposition of penalties under the Cenvat Credit Rules. The appellants, who are manufacturers of HDPE/PP tapes and HDPE bags chargeable to Central Excise duty, received duty paid inputs from a 100% EOU. The dispute arose regarding the method of calculating the available credit, with the department contending that the appellant's method was incorrect. This led to show cause notices being issued, resulting in the original adjudicating authority confirming a total Cenvat credit demand of Rs.2,35,510 through two separate orders.

Upon appeal to the Commissioner (Appeals), the Cenvat credit demands were upheld, albeit with adjustments to the penalties imposed. The Commissioner (Appeals) set aside the penalty for the second show cause notice but confirmed the penalty for the first show cause notice. The appellant then appealed against the Commissioner (Appeals)'s order upholding the penalty of Rs.44,388.

During the hearing, the appellant's counsel argued that the dispute was solely about the method of calculation based on their understanding of the rules. They cited a Tribunal decision to support their stance that penalties should not be imposed when excess credit is due to a dispute over interpretation. The Department's representative defended the impugned order.

After considering both sides' submissions and reviewing the records, the judge determined that the appellant had not availed the Cenvat credit incorrectly but had applied the prescribed formula. As such, upholding the penalty of Rs.44,388 for the specified period was deemed unjustified, especially when no suppression was found for another period. Consequently, the judge set aside the penalty of Rs.44,388 and allowed the appeal.

In conclusion, the judgment clarifies the correct application of Cenvat credit rules for inputs received from a 100% EOU and emphasizes that penalties should not be imposed when disputes arise over interpretation rather than malafide intentions.