2007 (8) TMI 216 - AT - Central Excise

Excise credit taken as they had not received timely clarification from revenue abut eligibility to take credit Credit reversed on receipt of clarification & before SCN Bonafide belief about eligibility for credit Interest is payable on credit taken erroneously but penalty is not imposable.

Summary

Issues:
1. Admissibility of credit under Notification No. 251/2003 C.E. (N.T.)
2. Excess credit taken by the appellants
3. Demand of interest and imposition of penalty

Admissibility of credit under Notification No. 251/2003 C.E. (N.T.):
The appellants, a garment manufacturer, sought approval for admissible credit under Notification No. 251/2003 C.E. (N.T.) concerning the withdrawal of deemed credit facilities for textile manufacturers. The Department provided clarification on the admissible credit only after the appellants had already taken excess credit of Rs. 15,07,474. Despite seeking timely clarification, the Department's response was delayed until October 2003. The appellants promptly reversed the excess credit upon realizing the error. The Tribunal acknowledged the appellants' genuine belief in their eligibility for the credit and their immediate corrective action upon notification of the error.

Excess credit taken by the appellants:
The appellants admitted to taking excess credit of Rs. 15,07,474 due to a lack of timely clarification from the Department. They reversed the excess credit before the issuance of the Show Cause Notice. The Tribunal noted that Rule 12 of the Cenvat Credit Rules, 2002 allows for the recovery of erroneously taken credit along with interest. Despite the appellants' mistake, their proactive reversal of the excess credit prior to the notice demonstrated good faith. Citing the case of Rashtriya Ispat Nigam Ltd. v. CCE, the Tribunal found that the penalty imposed on the appellants was not justified given the circumstances.

Demand of interest and imposition of penalty:
The original authority dropped the proceedings, but the Commissioner of Central Excise (Appeals) upheld the demand of interest amounting to Rs. 1,24,150 and imposed a penalty of Rs. 1,50,000. The Tribunal agreed with the interest demand as per Rule 12 of the Cenvat Credit Rules, 2002 but set aside the penalty considering the appellants' prompt reversal of the excess credit upon notification of the error. The Tribunal emphasized the appellants' good faith and compliance with the corrective action before the Show Cause Notice was issued, leading to the penalty being overturned.

In conclusion, the Tribunal upheld the demand of interest but set aside the penalty imposed on the appellants, recognizing their genuine belief in the admissibility of the credit and their immediate corrective measures upon discovering the error.