2016 (4) TMI 14 - AT - Central Excise

CENVAT credit wrongly availed - penalty imposed - Held that - The appellants have reversed the credit and also deposited the interest. The appellants have not been able to substantiate their act of availing credit as per provisions of law. Therefore the finding of the authorities below that appellant has wrongly availed credit does not call for any interference. Equal amount of penalty under Rule 15 read with 11AC is imposed upon the appellants besides separate penalty upon the Vice President under Rule 26 of Central Excise Rules. The appellant has reversed the credit alongwith interest before the issuance of show cause notice. The appellant reversed the credit and deposited the interest vide GAR-7 Challans dated 17.10.08 and 15.02.2011. But show cause notice dated 18/03/2011 was issued to the appellant and proceedings were initiated. Sub clause (2B) of Section 11A provides that when duty has been so paid no notice shall be served on the assessee. Therefore the penalty imposed is totally unjustified. The same are set aside.

Summary

Issues:
Allegation of availing 100% Cenvat credit on capital goods from sister unit in the same financial year without considering depreciation on old goods.

Analysis:
The appellant was accused of availing full Cenvat credit on old and used capital goods received from a sister unit in the same financial year, contrary to the prescribed 50% credit under Rule 4(2)(a) of the Cenvat Credit Rules 2004. The supplier unit did not clear the goods at a depreciated value as required by Rule 3(5) of the Credit Rules, resulting in the appellant availing surplus credit. Upon objections, the appellant reversed the credit with interest. The department alleged suppression of facts to evade duty, leading to a Show Cause Notice and subsequent order disallowing credit, imposing penalties, and confirming interest liabilities. The appellant argued Rule 10 of the Cenvat Credit Rules allowed credit utilization when lying unutilized, but the department contended Rule 10 was irrelevant in this case. The Tribunal upheld the department's findings, stating Rule 10 did not apply as the goods were transferred to a sister unit, not due to factory relocation as per Rule 10. The appellant's failure to substantiate their credit availing as per law led to the dismissal of their appeal against the credit disallowance.

The department accused the appellant of not disclosing the credit availed, claiming suppression of facts. Penalties were imposed under Rule 15 read with 11AC, along with a separate penalty on the Vice President under Rule 26 of the Central Excise Rules. However, the appellant had reversed the credit and paid interest before the show cause notice issuance. The appellant argued that as per Section 11A(2B), no notice should be served when duty is paid, rendering the penalties unjustified. The Tribunal agreed, setting aside the penalties imposed on the appellant and the Vice President. The impugned order was modified to exclude the penalties, partially allowing the appeals in favor of the appellant.

In conclusion, the Tribunal upheld the disallowance of credit for availing 100% Cenvat credit on capital goods from a sister unit without considering depreciation, dismissed the appeal against the credit disallowance, and set aside the penalties imposed on the appellant and the Vice President for failure to disclose the credit availed.