2008 (5) TMI 216 - AT - Central Excise

Assessee had wrongly availed Cenvat credit - Inadmissible credit was reversed by assessee immediately on noticing the error, prior to issue of SCN- no financial accommodation enjoyed by the appellant which had to be paid back to revenue along with compensation in the form of interest or penalty hence, penalty and interest are not imposable

Summary

Issues:
1. Demand of interest and penalty on wrongly availed Cenvat credit.
2. Interpretation of Cenvat Credit Rules, 2002 regarding recovery of wrongly taken credit, interest, and penalty.
3. Application of judicial precedents on penalty imposition in cases of duty payment before show cause notice.
4. Discretionary imposition of penalty based on conduct of the assessee.
5. Justification for demanding interest from the assessee.

Analysis:

1. Demand of interest and penalty on wrongly availed Cenvat credit:
The case involved M/s. Premier Mills Ltd. (PML) wrongly availing Cenvat credit, which was later reversed before a Show Cause Notice was issued. The original authority imposed a penalty and demanded interest, which was later vacated by the Commissioner. The issue revolved around whether interest and penalty were justifiable in such cases.

2. Interpretation of Cenvat Credit Rules, 2002:
The Revenue appealed against setting aside the interest demand and penalty imposed on PML, citing Rule 12 and 13 of the Cenvat Credit Rules, 2002. The argument was that the statutory provisions allowed for the recovery of wrongly taken credit along with interest. The interpretation of these rules was crucial in determining the liability of PML.

3. Application of judicial precedents on penalty imposition:
The Commissioner relied on judicial precedents, including the Apex Court's decision in Rashtriya Ispat Nigam Ltd. case, to support the decision to vacate the penalty and interest demand. The Revenue contested this, citing cases where penalties were upheld even in cases of belated rectification. The conflict lay in applying these precedents to the current case.

4. Discretionary imposition of penalty based on conduct:
The Tribunal considered the conduct of PML in promptly reversing the excess credit upon discovery. Various judicial authorities were cited by both sides to argue for and against the imposition of penalties based on the conduct of the assessee. The discretion to impose penalties hinged on whether the conduct was deliberate or a technical breach.

5. Justification for demanding interest:
The Apex Court's decision in Rashtriya Ispat Nigam Ltd. case was pivotal in determining the justification for demanding interest from the assessee. The Tribunal analyzed the provisions of Section 11AB regarding the recovery of interest in cases of duty not paid or short paid. The absence of financial benefit to the appellant raised questions about the necessity of demanding interest.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the decision to vacate the penalty and interest demand on PML. The judgment emphasized the discretionary nature of penalty imposition based on the conduct of the assessee and the absence of financial accommodation benefiting the appellant, justifying the decision to not demand interest.