2014 (10) TMI 129 - AT - Central Excise

Denial of CENVAT Credit - Capital goods - 100% credit availed in the first year - Held that - There being no dispute as to eligibility to avail Cenvat Credit on capital goods, the contravention that has arose is only in respect of the availment of 50% in the credit in the same year instead of next year needs to be condoned. At the same time, the appellant is required to pay appropriate interest on the amount of such credit availed by him in the same financial year. On a specific query from the bench, it was pointed that the appellant has already paid the appropriate interest on the excess availed Cenvat Credit. Ld. Departmental Representative does not dispute the payment of interest. Since the appellant has already compensated the Central Government by paying the interest on the amount of excess Cenvat Credit availed by him; which was eligible to be availed by him in subsequent year, the question of recovery of the Cenvat Credit of the 50% availed by them in the same financial year does not arise. As regards the penalties imposed by the lower authorities, justification given by the appellant that the availment of total Cenvat Credit of the duty paid on the capital goods was inadvertent as the capital goods in question was parts of oxygen plant and different valves seems to be correct as there could be a confusion as to these capital goods may be consumables. Since there is no malafide that could be attributed to such availment of credit nor does the records reveal anything to hold a view against appellant, I am of the view that the penalty imposed on the appellant is unwarranted and needs to be set aside. interest liability which is paid by the appellant is correct, while the Cenvat Credit availed by the appellant is also held to be correct and the penalties imposed are set aside. - decided in favour of assessee.

Summary

Issues:
- Incorrect availment of Cenvat Credit on capital goods
- Disallowance of Cenvat Credit amount
- Recovery of interest and penalty
- Appeal against the order of the adjudicating authority
- Dispute over the availment of entire credit in the first financial year
- Eligibility to avail Cenvat Credit on capital goods
- Payment of appropriate interest on excess availed Cenvat Credit
- Justification for inadvertent availment of total Cenvat Credit
- Imposition of penalties by lower authorities

The judgment deals with an appeal against an Order-in-Appeal related to the incorrect availment of Cenvat Credit on capital goods by the appellant. The appellant had wrongly availed full credit of duty on capital goods in the financial year 2009-10, contrary to the eligible 50% credit as per Cenvat Credit Rules, 2004. The Department issued a show cause notice for disallowing the excess credit, recovering interest, and imposing a penalty. The adjudicating authority disallowed the Cenvat Credit, ordered interest recovery, and imposed a penalty. The appellant appealed, but the first appellate authority upheld the decision.

Upon review, the judge noted that the appellant had indeed availed 100% Cenvat Credit on capital goods in the first financial year instead of the eligible 50%. The revenue contended that this resulted in the appellant using ineligible credit to pay central excise duty on finished goods, necessitating repayment with interest and penalties. However, the judge found that the appellant's eligibility to avail Cenvat Credit on capital goods was not in dispute, and the issue centered on the timing of credit availment.

The judge disagreed with the first appellate authority, stating that the contravention was only related to the appellant availing the entire credit in the first financial year instead of the next year. The judge opined that while the appellant should pay appropriate interest on the excess credit, since the appellant had already paid the interest, recovery of the 50% availed credit did not apply. The judge found the appellant's case valid and held that the contravention should be condoned.

Regarding the penalties imposed, the judge accepted the appellant's explanation that the total Cenvat Credit availed was inadvertent due to confusion regarding the nature of the capital goods. Finding no malafide intent or evidence against the appellant, the judge deemed the penalties unwarranted and set them aside. The judge disposed of the appeal by affirming the correctness of the interest liability paid by the appellant, validating the Cenvat Credit availed, and nullifying the penalties imposed by the lower authorities.

In conclusion, the judgment ruled in favor of the appellant, acknowledging the inadvertent error in availing the Cenvat Credit on capital goods and determining that the penalties imposed were unjustified. The decision emphasized the importance of correct credit availment timing and appropriate interest payment while ensuring penalties are reasonable and warranted based on the circumstances.