2011 (12) TMI 428 - AT - Central Excise

Denial of CENVAT Credit - exemption Notification No. 22/2007-C.E. - Penalty under Rule 15 of the Cenvat Credit Rules, 2004 - Held that - After examining the provisions of Rule 15 of the Cenvat Credit Rules, 2004, I find that sub-rule (1) provides for confiscation and penalty where any Cenvat credit is taken or utilized in respect of inputs or capital goods or input services wrongly or in contravention of any of these provisions. In the instant case, the assessee obviously contravened Rule 6(3) by not maintaining separate accounts and also Rule 11 by not reversing Cenvat credit on inputs in stock as on the date immediately before opting for exemption from payment of duty on final product under Notification No. 22/2007-C.E. Of course, the credit wrongly taken was subsequently reversed. However, the cause of action for penalty under Rule 15 remained. The rule does not require any mens rea to be established by the Department against the assessee for a penalty. In this view of the matter, the penalty under challenge cannot be vacated. Though, apparently, substantial relief was given to the assessee by the lower appellate authority, I am of the view that considerations like financial constraints can also have a bearing on the quantum of penalty to be imposed under Rule 15(1). The impugned order does not indicate that this aspect was considered - Penalty reduced - Decided partly in favour of assessee.

Summary

Issues:
Penalty imposed under Rule 15 of the Cenvat Credit Rules, 2004 for non-maintenance of separate accounts and failure to reverse Cenvat credit on inputs in stock upon opting for exemption under Notification No. 22/2007-C.E.

Detailed Analysis:

1. Penalty Imposed under Rule 15 of the Cenvat Credit Rules, 2004:
The appeal was against a penalty of Rs. 25,000 imposed on the assessee under Rule 15 of the Cenvat Credit Rules, 2004. The penalty was due to the assessee's failure to maintain separate accounts as required under Rule 6(3) for inputs used in dutiable and exempted products. Additionally, the assessee did not reverse Cenvat credit on inputs in stock upon opting for exemption under Notification No. 22/2007-C.E. The demand amounting to Rs. 2,05,758 was raised, along with a denial of Cenvat credit of Rs. 6,13,085 and interest under Section 11AB of the Central Excise Act. The original authority imposed a penalty of Rs. 1 lakh, later reduced to Rs. 25,000 by the first appellate authority.

2. Grounds of Appeal and Arguments:
The appellant contended that financial constraints delayed payments and they were unaware of the requirement to reverse Cenvat credit on inputs upon opting for exemption. The reversal was done before the show-cause notice. The appellant claimed no intent to evade duty, seeking a vacation of the penalty. The Department opposed this plea, citing findings by the authorities and the substantial relief given by reducing the penalty to Rs. 25,000.

3. Judicial Analysis and Decision:
The judge noted the contravention of Rule 6(3) and Rule 11 by the assessee, leading to the penalty imposition under Rule 15. The rule does not necessitate establishing mens rea for penalty imposition. While the credit was eventually reversed, the penalty remained valid. The judge acknowledged the financial constraints as a factor in determining the penalty amount. Considering this, the penalty on the appellant was reduced to Rs. 15,000. The decision sustained the impugned order, disposing of the appeal accordingly.

This judgment highlights the importance of compliance with Cenvat Credit Rules, emphasizing the consequences of non-maintenance of separate accounts and failure to reverse credits as required by the law. The decision showcases the judicial interpretation of penalty provisions, considering factors like financial constraints in determining the penalty amount.