2012 (11) TMI 1002 - AT - Central Excise

Availment of CENVAT credit - Product already exempted by classifying the product under SH 6807.10 - Debit made in CENVAT Credit account to make pre deposit - Contravention of provisions of Central Excise Act - Held that - It is true that, where the final product is exempted, the question of does not arise - appellant was acting in pursuance of the Tribunal s Stay Order dated 20-12-2007 when they debited the amount of Rs. 6,82,965/- in RG 23A part II on 10-3-2008. Apparently, they reported this debit in CENVAT account to the Tribunal and the latter recognized it as valid pre-deposit under Section 35F of the Central Excise Act. At that time, no objection was raised by the respondent. Had it been the case of the respondent that the appellant had not made any valid pre-deposit and hence their appeal should not be considered on merits, this objection should have been raised before the Tribunal through the authorized representative of the department. But this was not done - pre-deposit could be made through debit in CENVAT account. This apart, the facts and circumstances narrated hereinbefore are enough to indicate that the show-cause notice in question was issued regardless of the fact that the assessee by debiting the amount in their CENVAT account was only implementing the order passed by this Tribunal under Section 35F of the Central Excise Act - Decided in favour of assessee.

Summary

Issues:
1. Demand of interest on CENVAT credit utilized for pre-deposit.
2. Validity of show-cause notice for recovery of irregularly availed CENVAT credit.
3. Imposition of penalty under CENVAT Credit Rules, 2004.

Analysis:

Issue 1: Demand of interest on CENVAT credit utilized for pre-deposit
The appellant filed an appeal against a demand of interest on CENVAT credit utilized for pre-deposit pursuant to Stay Order Nos. 1020 & 1021/2007. The Tribunal directed pre-deposit of 50% of the duty demanded, which the appellant debited in their CENVAT account. Subsequently, the appeals were disposed of in favor of the appellant, and the Commissioner's appeal was dismissed by the Supreme Court. The appellant argued that the department's subsequent proceedings, including the demand of interest, should be set aside due to lack of objection raised earlier.

Issue 2: Validity of show-cause notice for recovery of irregularly availed CENVAT credit
During the pendency of the appeals, a show-cause notice was issued to recover an amount alleged to have been irregularly availed in the CENVAT account for pre-deposit. The Additional Commissioner confirmed the demand and imposed a penalty. The appellant contended that the notice was barred by judicial discipline as the pre-deposit was accepted by the Tribunal and no objection was raised earlier. The department argued that the appellant was not entitled to avail CENVAT credit for pre-deposit as they were manufacturing exempted final products.

Issue 3: Imposition of penalty under CENVAT Credit Rules, 2004
The appellate authority reduced the penalty but sustained the demand of interest. The appellant's counsel cited Tribunal decisions recognizing debit in CENVAT account as a valid pre-deposit method. The Tribunal noted that the appellant acted in compliance with the Stay Order when debiting the amount in the CENVAT account, and the department's failure to object earlier was significant. The Tribunal held that the show-cause notice issued during the appeals' pendency lacked merit and set aside all departmental proceedings, allowing the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the demand of interest and penalty, emphasizing the importance of adherence to judicial orders and procedures during legal proceedings.