2015 (10) TMI 1539 - AT - Central Excise

Levy of penalty where duty has been paid with interest before issuance of SCN - Reversal of CENVAT Credit - Written off value of certain inputs - held that - Appellant has paid amount of 9, 90, 630/- alongwith interest as per their calculation immediately after pointed out by CERA audit team and intimated to the department. In my view the act of the appellant regarding the payment of Cenvat amount alongwith interest without any contest is covered by subsection (2B) of Section 11A(1) according to which if the duty amount alongwith interest is paid no show cause notice should be issued. In this position since show cause notice should not have been issued the penalty could not have been imposed. Considering overall facts and circumstances of the case I am of the view that penalty commensurate to the amount of Cenvat Credit of 9, 90, 630/- is not sustainable therefore the same is set aside. However I agree with the ld. Commissioner (Appeals) that total demand of 11, 32, 147/- sustainable accordingly appellant is directed pay difference Cenvat amounting to 1, 41, 517/- alongwith interest and also penalty of equal amount of 1, 41, 517 - Decided partly in favour of assessee.

Summary

Issues:
- Admissibility of Cenvat Credit on written-off value of inputs
- Applicability of penalty under Section 11AC
- Interpretation of Section 11A(1)(2B) regarding issuance of show cause notice

Analysis:

Admissibility of Cenvat Credit on written-off value of inputs:
The case involved a dispute regarding the admissibility of Cenvat Credit on the written-off value of certain inputs in the appellant's balance sheet. The Central Excise audit team initially pointed out this discrepancy for the period 2009-10, leading to the reversal of Cenvat Credit and payment of interest by the appellant. Subsequently, during a CAG audit for the period 2007-08 to 2008-09, it was revealed that the appellant had also written off certain inputs during these years. The appellant voluntarily calculated and paid the Cenvat Credit along with interest for these earlier periods. The appellant argued that the reversal of written-off value was believed to be applicable only for 2009-10 due to a rule amendment, and there was no intention to evade duty. The appellant contended that since the written-off value was declared in the balance sheet and available for verification, there was no suppression of facts to warrant a penalty.

Applicability of penalty under Section 11AC:
The Revenue, represented by the Additional Commissioner, argued that the appellant had knowingly failed to reverse Cenvat Credit for the earlier periods despite being aware of the written-off value of inputs, indicating a clear case of suppression of facts. However, the Tribunal found that the appellant had promptly paid the Cenvat Credit and interest upon discovery by the audit team, without contesting the demand. The Tribunal noted that the appellant's actions fell under subsection (2B) of Section 11A(1), which prohibits the issuance of a show cause notice if the duty amount and interest are paid without contest. Consequently, the Tribunal held that since a show cause notice should not have been issued, the penalty imposed under Section 11AC was not sustainable and set it aside.

Interpretation of Section 11A(1)(2B) regarding issuance of show cause notice:
The Tribunal's analysis of Section 11A(1)(2B) emphasized that the appellant's voluntary payment of the Cenvat amount and interest, without contesting the demand, precluded the necessity of a show cause notice. By invoking this provision, the Tribunal concluded that the penalty imposed was unwarranted. However, the Tribunal upheld the total demand of Cenvat Credit, directing the appellant to pay the differential amount, interest, and a reduced penalty in line with the findings. The appeal was partly allowed, with the penalty amount being set aside, and the appellant being directed to pay the adjusted Cenvat amount, interest, and a revised penalty.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the Tribunal's reasoning leading to the final decision on each issue involved in the case.