2007 (10) TMI 93 - AT - Central Excise

Credit wrongly availed reversed suomoto by appellant before issue of SCN SCN did not propose any penalty u/r 13(2) Lower appellate authority traveled beyond the scope of SCN to impose penalty Held that no penalty was liable to be imposed on appellants u/r 13(1) CCR either

Summary

Issues:
- Wrongly taken Cenvat credit of Countervailing duty (CVD) on imported raw materials
- Imposition of penalties under Rule 13(1) and Rule 13(2) of the Cenvat Credit Rules, 2002

Analysis:
1. The appellants initially took Cenvat credit of CVD on imported raw materials on three different dates in 2001 and 2002, amounting to Rs. 38,06,068/-. They mistakenly took the same credit again on 31-3-2002 but later realized the error and reversed a major part of the credit on 9-4-02 and the rest on 12-4-02, paying interest on the amount. A show-cause notice proposing penalties under Rule 13(1) was issued by the Department, which was contested. The adjudicating authority dropped the proposal, but the appellate authority allowed the appeal to impose penalties of Rs. 3.80 lakhs and Rs. 3.75 lakhs under sub-rules (1) and (2) of Rule 13. The current appeal challenges the decision of the Commissioner (Appeals).

2. Upon review, it was found that the appellants had rectified their mistake by reversing the wrongly taken credit and paying interest. The show-cause notice was based on the verification of records and returns filed by the party, revealing the error in availing the credit. While the Department alleged deliberate availment of credit for the second time, the notice did not propose a penalty under Rule 13(2). The appellate authority exceeded the scope of the notice by imposing a penalty under this provision, which was deemed unsustainable in law. The remaining penalty under sub-rule (1) of Rule 13 was imposed at 10% of the Cenvat credit amount by the Commissioner (Appeals), a decision not challenged by the Revenue. However, the appellants argued for a complete waiver of penalty, citing precedents where penalties were set aside for similar cases of rectification before show-cause notices.

3. The judgment set aside the impugned order, allowing the appeal and ruling that no penalty should have been imposed on the appellants under sub-rule (1) of Rule 13. The decision was based on the appellants' rectification of the error before the show-cause notice and the absence of any deliberate intent to evade duty. The case was aligned with previous rulings where penalties were waived for similar circumstances.