2015 (4) TMI 382 - HC - Central Excise

CENVAT Credit availed wrongly on Capital goods - presence of Mens rea or guilt - Imposition of penalty - Held that - In cases where the CENVAT credit in respect of capital good has been taken or utilized wrongly on account of fraud, willful misstatement, collusion or suppression of fact or contravention of any provision of the Act or Rules made thereunder, with an intention to evade payment of duty then only penalty is liable to be imposed. - It is the case of the assessee that by taking benefit of this judgment the credit facility was availed of. However, in doing so, it cannot be said that the credit facility in respect of the capital good was wrongly used on account of fraud, willful misstatement, collusion or suppression of fact. It is also not an intentional contravention of any statutory provision. At best it may amount to misunderstanding the law and its applicability and in the absence of any mens rea on the part of the assessee, if two Appellate Authorities namely the Commissioner and the Appellate Tribunal found that imposition of penalty in the instant case is not called for as there is no sufficient evidence to prove Mens rea or guilt on the part of the assessee, we see no reason to interfere with such a reasonable approach adopted by Appellate authorities concurrent in nature. Imposition of penalty that also equal to the amount of the credit facility availed of in a penal consequence and a penal consequence is to be enforced only when the conduct of the assessee shows certain positive action indicating fraud, misstatement collution etc.. This action of the assessee may be in contravention to the statutory provision but it was with a bonafide reason or belief by interpretation of a judgment of a High Court, then the imposition of penalty in such circumstances was not warranted. The Appellate Authority and the Appellate Tribunal in para 5 of the impugned order has dealt with the matter in detail and when the discretion has been exercised finding there to be no ill intention, malafide or collusion on the part of the Assessee in availing of the facility, we are not inclined to interfere into the matter as no substantial question of law is involved in the matter. - no case made out for interferring with the concurrent findings recorded by the authorities, the appeal is dismissed at the stage of admission itself. - Decided against Revenue.

Summary

Issues:
1. Challenge to concurrent orders under Section 35G of the Central Excise Act, 1944 regarding the imposition of penalty on availing CENVAT credit.
2. Interpretation of whether railway track, concrete sleepers, and other materials used for laying down railway track constitute capital goods under CENVAT Credit Rules, 2004.
3. Discretionary power of Appellate Authorities in imposing penalties for wrongful utilization of CENVAT credit.
4. Assessment of mens rea or intentional wrongdoing in availing CENVAT credit on the basis of a legal provision.

Analysis:

1. The case involved an appeal by the Revenue challenging the imposition of penalty under Section 35G of the Central Excise Act, 1944 based on concurrent orders by the Appellate Authorities. The Respondent Company availed CENVAT credit for capital goods used in laying down railway tracks for its cement plant, leading to a dispute regarding the eligibility of such materials as capital goods under the CENVAT Credit Rules, 2004.

2. The Respondent argued that the materials used for the railway track constituted capital goods based on a legal precedent and that the imposition of penalty was unwarranted as there was no evidence of fraud, misstatement, or collusion. The Appellate Authorities found the availing of credit to be a genuine mistake rather than intentional wrongdoing, emphasizing the absence of mens rea on the part of the assessee.

3. The court examined Rule 15(2) of the CENVAT Credit Rules, 2004, which stipulates that penalties for wrongful utilization of credit are applicable only in cases involving fraud, willful misstatement, collusion, or contravention of statutory provisions with an intention to evade duty. The judgment highlighted that the imposition of penalties should be based on positive actions indicating fraud or intentional wrongdoing, which was not evident in this case where the availing of credit was based on a genuine interpretation of a legal provision.

4. The judgment emphasized that penalties equal to the amount of credit availed should only be imposed when there is clear evidence of intentional wrongdoing or contravention of statutory provisions with ill intent. In this case, the Appellate Authorities found no malafide intentions or collusion on the part of the assessee, leading to the dismissal of the appeal at the admission stage due to the absence of any substantial legal question arising from the matter.

In conclusion, the judgment upheld the discretionary power of the Appellate Authorities in assessing penalties for the wrongful utilization of CENVAT credit, emphasizing the importance of proving intentional wrongdoing or fraudulent actions before imposing penalties equal to the amount of credit availed.