2015 (6) TMI 264 - AT - Central Excise

Penalty u/s 11AC - availment of cenvat credit on various capital goods during the establishment of the new unit - whether penalty can be imposed under the facts and circumstances of the case - Held that - Appellant was setting up a new unit and in that context, they have availed the cenvat credit on many items and even though initially the demand was issued for an amount of ₹ 60,27,939/-, finally the Commissioner has confirmed only an amount of ₹ 13,34,445/-. It is also seen that the items on which the credit has been denied are undoubtedly used in the factory. It is only due to interpretation of whether the said items would be covered within the definition of capital goods that they are being denied the credit. It is also seen that the items are falling under Chapter 73 and are in the nature of inputs used in the manufacture of supporting structures of capital goods and few items are used in the installation work outside the factory limits. - Ingredients of Section 11AC are missing in the case and, therefore, penalty imposed is set aside - Decided in favour of assessee.

Summary

Issues:
- Denial of cenvat credit on capital goods during establishment of new unit
- Confirmation of demand, interest, and penalty under Cenvat Credit Rules and Central Excise Act
- Dispute over denial of cenvat credit and imposition of penalty
- Interpretation of whether items fall under definition of capital goods
- Imposition of penalty under Section 11AC

Analysis:
The case involved the appellants availing cenvat credit on capital goods during the setup of a new unit, leading to a show cause notice proposing denial of credit amounting to Rs. 60,27,939. The Commissioner confirmed a demand of Rs. 13,34,445 along with interest and a penalty equivalent to the duty confirmed under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act.

During the appeal, the appellant disputed the denial of cenvat credit and imposition of equal penalty. However, during the hearing, they did not press for dropping the confirmed amount. The Tribunal questioned the appellant's stance, as they had not contested the demand before the original authority. The appellant clarified that they were no longer pressing for denial of cenvat credit but were seeking to challenge the imposition of equal penalty under Section 11AC. They argued against the penalty by citing relevant Supreme Court decisions and emphasizing the lack of wilful intention to evade duty.

The appellant's counsel contended that no penalty should be imposed, highlighting that the issue of entitlement to cenvat credit for items under Chapter 73 involved interpretation. On the contrary, the Assistant Commissioner reiterated that the appellant, under self-assessment, failed in their duty to avail admissible cenvat credit and reversed it only after detection by departmental officers during record scrutiny.

The Tribunal deliberated on whether penalty could be imposed based on the circumstances. Considering that the disputed items were used in the factory and fell under Chapter 73, related to inputs for manufacturing supporting structures of capital goods, the denial of credit was due to interpretational issues. Given that the appellant had rectified the credit reversal and paid interest upon detection, the Tribunal found that the conditions of Section 11AC were not met, leading to the setting aside of the penalty imposition. The appeal was disposed of accordingly on 11.3.2015.