2015 (12) TMI 1205 - AT - Central Excise

Penalty u/s 11AC - Denial of CENVAT Credit - Nexus with manufacturing activity - Held that - Imposition of mandatory penalty under Section 11 AC, when duty and interest is paid within thirty days, the amount of penalty shall be 25% of the duty. As the duty along with interest has already been paid by the respondent assessee, the Commissioner (Appeals) has rightly reduced the penalty (50% of duty) imposed under Rules 15(2) and 15(3) to 25% - Decided against Revenue.

Summary

Issues:
1. Appeal against reduction of penalty by Commissioner (Appeals).
2. Imposition of mandatory penalty under Section 11 AC.
3. Applicability of penalty when duty and interest are paid within thirty days.

Analysis:

Issue 1: Appeal against reduction of penalty by Commissioner (Appeals)
The Revenue filed two appeals challenging the Orders of the Commissioner (Appeals) dated 06.08.2014 and 16.06.2014. The first appeal was against the reduction of penalty to 25% of the duty demanded from 50% imposed by the adjudicating authority. The second appeal was against the rejection of the department's appeal requesting the setting aside of the original order imposing a penalty not less than 100%.

Issue 2: Imposition of mandatory penalty under Section 11 AC
The respondent assessee was found to have wrongly availed cenvat credit on input services during the financial years 2006-2007 to 2009-2010. The penalty of 50% of the duty was imposed under Rule 15(2) and Rule 15(3) of CVR, 2004 read with Section 11AC of the CEA, 1944. The Revenue argued that as Section 11AC was in force during the relevant period, the penalty should be 25% of the duty determined if paid within the specified period.

Issue 3: Applicability of penalty when duty and interest are paid within thirty days
The respondent contended that when duty is paid before the issuance of Show Cause Notice (SCN) and interest is paid within 30 days from the date of SCN, the penalty should not be imposed. The Commissioner (Appeals) reduced the penalty to 25% of the duty as the duty and interest were paid within the specified period, as per Section 11AC(1)(c) of the CEA, 1944.

In the judgment, the Tribunal upheld the Commissioner (Appeals) order reducing the penalty to 25% of the duty demanded in the first appeal. In the second appeal, since the Commissioner (Appeals) had already reduced the penalty, the Tribunal set aside the order and dismissed the appeal filed by the Revenue. The judgment emphasized the applicability of Section 11AC and the significance of timely payment of duty and interest in determining the penalty amount.