2012 (6) TMI 727 - AT - Central Excise

Duty demand - CENVAT Credit - Interest and penalty - Held that - Even though during the period of dispute, there was no provision for recovery of the amount payable under Rule 6(3) of Cenvat Credit Rules, 2001/2002/Rule 57AD (2) of Central Excise Rules, 1944 from an assessee who had not paid the same, since such a provision for recovery was introduced with retrospective effect only by Section 82 of the Finance Act, 2005, while the amount not paid can be recovered along with interest by invoking the recovery provision - while the demand for the amount demanded under Rule 6(3) of Cenvat Credit Rules, 2001/2002/Rule 57AD(2) of Central Excise Rules, 1944 along with interest is upheld, the penalty of Rs. 59,73,020/- imposed on the appellant is set aside. As regard, the penalty of Rs. 1348/- for clearance of ODS without payment of duty, the same is not disputed and is upheld - Following decision of CCE and ST LTU, Bangalore v. Bharat Electronics Ltd. 2011 (3) TMI 512 - KARNATAKA HIGH COURT and CCE, Allahabad v. JHV Sugar Corporation Ltd. 2009 (10) TMI 798 - CESTAT NEW DELHI - Decided partly in favour of assessee.

Summary

Issues:
1. Cenvat credit utilization for dutiable and exempted final products without separate account maintenance.
2. Recovery of amounts payable under Rule 57AD(2) of Central Excise Rules, 1944/Rule 6(3) of Cenvat Credit Rules, 2001/2002.
3. Imposition of penalty for non-payment of amounts and duty short paid.

Analysis:
1. The appellant utilized Cenvat credit of duty on molasses for manufacturing Ordinary Denatured Spirit (ODS), Special Denatured Spirit (SDS), and Rectified Spirit (RS). While ODS and SDS were dutiable, RS was exempted. The appellant did not maintain separate accounts for inputs used in dutiable and exempted products. The department initiated proceedings for recovery of 8% of the sale value of the exempted product and short paid duty on ODS. The Commissioner confirmed the demand, interest, and penalty. The appellant challenged the order.

2. The appellant argued that the recovery provisions were introduced retrospectively, allowing recovery with interest but not penalty. Citing precedents, the appellant contended that penalty should not be imposed. The department defended the penalty imposition, stating non-declaration of exempted product manufacture in ER-1 returns justified the penalty. The Tribunal observed the use of common Cenvat credit without separate accounts, leading to the application of Rule 57AD(2)/Rule 6(3). The appellant accepted the liability to pay the amount but disputed interest and penalty.

3. The Tribunal acknowledged the retrospective introduction of recovery provisions but held that penalty imposition was not justified based on legal precedents. Consequently, the demand for the amount under Rule 6(3)/Rule 57AD(2) along with interest was upheld, but the penalty of Rs. 59,73,020 was set aside. The penalty of Rs. 1348 for ODS clearance without duty payment was upheld. The appeal was disposed of accordingly, with the penalty for ODS upheld and the penalty for the exempted product set aside.