2013 (12) TMI 86 - AT - Central Excise

Imposition of Penalty u/s 11AC of Central Excise Act as per the decision of the Dharmendra Textiles Industries & Ors vs. UOI 2008 (9) TMI 52 - SUPREME COURT - Once the wrongly taken credit along with interest was suo-motto paid by the appellant and thereafter intimating the department, it cannot be said that assessee had any intention to take wrong cenvat credit by making misstatement or suppressing facts - the provisions of Section 11AC are not attracted and no penalty under Section 11AC of the Central Excise Act, 1944 is imposable Decided against Revenue. Penalty under rule 15(1) not mentioned in show cause notice Held that - Commissioner (Appeals) has imposed the penalty under Rule 15(1) of the Cenvat Credit Rules, 2004, which was not even quoted in the show cause notice Thus, Commissioner (Appeals), has gone beyond the scope of show cause notice - penalty under Rule 15(1) of the Cenvat Credit Rules, not invoked in the show cause notice, cannot be imposed upon the assessee Decided in favour of Assessee.

Summary

Issues: Imposition of penalty under Section 11AC of the Central Excise Act, 1944 and Rule 15(1) of the Cenvat Credit Rules 2004.

Analysis:

1. The appeal was filed by the Revenue against the order issued by the Commissioner (Appeals) regarding the imposition of penalties on the appellant for availing cenvat credit without paying CVD. The appellant had reversed the credit and paid interest upon detection of the error. A show cause notice was later issued, leading to the imposition of a penalty under Section 11AC of the Central Excise Act, 1944. The Commissioner (Appeals) held that while Section 11AC penalty was not applicable, a penalty of Rs. 50,000 was justified under Rule 15(1) of the Cenvat Credit Rules 2004. The Revenue contended that the Section 11AC penalty should have been imposed based on a Supreme Court judgment.

2. The respondent, M/s. Guarniflon India Pvt. Limited, argued that their internal auditors identified the error in availing cenvat credit, which was then reversed and intimated to the department before any show cause notice. They contended that penalties under Section 11AC or Rule 15(1) were not warranted as the credit was voluntarily corrected. They also claimed that their case should fall under Section 11A (2B) due to the timely rectification.

3. The Revenue's argument for the imposition of a penalty under Section 11AC was based on the grounds of appeal. However, after considering the submissions and evidence, it was noted that the appellant had rectified the error voluntarily upon detection by their internal auditors. The appellant had paid the interest and reversed the wrongly taken credit before any formal notice. It was concluded that there was no intention to deceive or suppress facts, and hence, Section 11AC penalties were deemed inapplicable.

4. Regarding the cross-objections filed by the respondent, it was observed that the Commissioner (Appeals) had imposed a penalty under Rule 15(1) of the Cenvat Credit Rules 2004, which was not mentioned in the show cause notice. Since the respondent had rectified the error voluntarily and no malafide intent was found, the imposition of this penalty was deemed unjustified. The cross-objection was allowed based on these grounds.

5. Consequently, the appeal by the Revenue was dismissed, and the cross-objection by the respondent was allowed. The judgment emphasized the importance of voluntary rectification, lack of malafide intent, and adherence to procedural requirements in the imposition of penalties under the Central Excise Act and Cenvat Credit Rules.

Conclusion: The judgment dismissed the appeal by the Revenue, ruling out the imposition of penalties under Section 11AC, and allowed the cross-objection by the respondent, emphasizing the significance of voluntary rectification and procedural compliance in such cases.