2017 (8) TMI 1453 - AT - Central Excise

Non-reversal of Central Excise Duty on obsolete goods - Whether the appellant has to be visited with equivalent amount of penalty under the provisions of Rule 15(2) read CENVAT Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944 or otherwise? Held that - There is no dispute as to the fact that the goods are considered as obsolete by the appellant and provided for write off in the books of accounts, does not mean that the goods were removed from the place of manufacture. It is only of accounting entry which would indicate the true and correct picture of the financial status of the company to their shareholders - Non-reversal of central excise duty involved in the obsolute goods would in no way be considered as an act done with intend to evade payment of duty and that also by alleging suppression, so as to attract penalty - equivalent amount of penalty imposed under Rule 15(2) of the CCR, 2004 is unsustainable and liable to be set aside - appeal allowed - decided in favor of appellant.

Summary

Issues: Whether penalty under Rule 15(2) of CENVAT Credit Rules, 2004 is applicable.

Analysis:
The appeal was filed against Order-in-Appeal No. MYS-EXCUS-000-ADC-APP-HAB-049-2014 dated 07.05.2014. The main issue for consideration was whether the appellant should be penalized under Rule 15(2) of the CENVAT Credit Rules, 2004 along with Section 11 AC of the Central Excise Act, 1944. The appellant had availed CENVAT credit for capital goods, inputs, and input services during March 2007 to September 2008. Due to obsolescence of stocks, provisions were made in the financial books for write-off of machinery and slow-moving inventories. The Revenue contended that the appellant should have reversed the CENVAT credit for these items. The adjudicating authority confirmed the demands, including the penalty under Rule 15(2) of the CCR, 2004. The first appellate authority dropped other penalties but upheld the penalty under Rule 15(2) of the CENVAT Credit Rules, 2004.

Upon careful consideration, it was observed that the goods were considered obsolete by the appellant and written off in the books, but they were not physically removed from the place of manufacture. Non-reversal of central excise duty for obsolete goods was not an intentional act to evade payment. It was noted that the recovery mechanism for wrongly taken CENVAT credit under Rule 3(5B) was introduced after the show cause notice was issued, making it difficult for the appellant to contest the non-reversal. The appellant contested only the penalty imposition, leading to the conclusion that the penalty under Rule 15(2) of the CCR, 2004 was unsustainable and set aside. The impugned order upholding the penalty under Rule 15(2) of the CCR, 2004 was set aside, and the appeal was disposed of accordingly.