2014 (3) TMI 791 - AT - Central Excise

Penalty Denial of Cenvat credit on Boomer Tattoo - manufacture of chewing gum/bubble gum - Earlier tribunal 2010 (2) TMI 443 - CESTAT NEW DELHI has disallowed the credit as Tatoos/Printed Transfer were being supplied as complementary items not eligible for credit - demand with interest and penalty was confirmed. - In respect of penalty HC has remanded back the order for reconsideration Held that - If the credit was being availed by reflecting the same in the statutory records and proper ER-1 returns were being filed, it cannot be said that there was any suppressions on mis-statement with any malafide intent on the part of the assessee - issue involved in the present appeal is of legal interpretation of the provisions of Modvat Rules and is capable of interpretation in favour of the assessee also. As such the respondents cannot be faulted upon for availing the benefit of Modvat credit in respect of Tattoos so as to impose penalty upon them - no reason to impose any penalty on the respondents - denial of Modvat credit upheld, penalty is not required to be imposed - Decided partly in favour of Reveue.

Summary

Issues:
Denial of Modvat credit for Boomer Tattoo/Printed Transfers, Tribunal's imposition of penalty under Rule 13(2) read with Section 11AC of Central Excise Act, 1944, High Court's review of penalty imposition by Tribunal.

Analysis:
1. Denial of Modvat Credit:
The case involved the denial of Modvat credit to the respondents for Boomer Tattoo/Printed Transfers under Chapter 17 of the Central Excise Tariff Act. The show cause notice initially alleged ineligibility of the said Tattoos as Modvatable inputs. However, the Commissioner later allowed the Modvat credit, which was appealed by the Revenue before the Tribunal. The Tribunal, in its Final Order, allowed the Revenue's appeal, declaring the Modvat credit availed as illegal and recoverable by the department along with interest and penalty.

2. Imposition of Penalty by Tribunal:
The Tribunal not only denied the Modvat credit but also imposed a penalty on the respondents under Rule 13(2) read with Section 11AC of the Central Excise Act, 1944. This penalty imposition was challenged by the assessee before the High Court of Punjab & Haryana. The High Court, citing relevant legal precedents, observed that the Tribunal's penalty imposition was not sustainable as there was no mala fide intent in availing the Modvat credit. The matter was remitted back to the Tribunal for reconsideration on the point of penalty imposition.

3. Review of Penalty Imposition by High Court:
The High Court's order highlighted that the Tribunal did not provide sufficient reasoning for imposing the penalty when the revenue had accepted the Adjudicating Authority's decision for an earlier period. It emphasized the absence of mala fide intent in availing the credit and remitted the matter back to the Tribunal for a fresh consideration on the imposition of penalty. Consequently, the Tribunal was directed to assess if any penalty was warranted based on the earlier order and the nature of default, if any, committed by the appellant.

4. Final Decision on Penalty Imposition:
Upon reconsideration, the Tribunal acknowledged that the issue involved a genuine legal interpretation of Modvat Rules and that there was no suppression or misstatement by the assessee. It noted that the Commissioner had previously set aside the penalty for a period before the present appeal, and that decision had not been challenged by the Revenue, thus attaining finality. The Tribunal concluded that the penalty was not imposable on the respondents, as the issue was primarily a matter of legal interpretation of the Modvat Rules, and there was no basis for penalizing the assessee for availing the Modvat credit. Therefore, the Tribunal disposed of the Revenue's appeal without imposing any penalty on the respondents.