2016 (4) TMI 976 - AT - Central Excise

Demand of interest and imposition of penalty u/s Section 11AB and 11AC respectively - Cenvat credit availed to the extent of 100% in respect of Capital goods instead of 50% - Held that - subsection (1) of Section 11A provides for issuance of show cause notice and subsection (2) provides for determination of duty. In the present case neither any show cause notice was issued for proposing any demand of duty/Cenvat nor any determination of duty / Cenvat was made under subsection (2). Issuance of show cause notice and determination of demand is the main ingredient in order to demand interest and penalty under Section 11AB and 11AC respectively. In absence of observance of Section 11A (1) and (2) the interest and penalty cannot be imposed. Therefore, interest and penalty are unsustainable. - Decided in favour of appellant

Summary

Issues Involved:
- Show cause notice for demand of interest and penalty under Section 11AB and 11AC without any notice for wrong availment of Cenvat credit.

Analysis:

Issue 1: Show cause notice for demand of interest and penalty under Section 11AB and 11AC without any notice for wrong availment of Cenvat credit:
The Appellate Tribunal CESTAT Mumbai addressed the issue of whether interest and penalty could be imposed without a show cause notice for wrong availment of Cenvat credit. The appellant argued that the show cause notice was solely for interest and penalty under Section 11AB and Section 11AC, with no mention of any wrongful Cenvat credit availed. The appellant contended that without a notice under Section 11A(1) or an Adjudication Order under Section 11A(2), there could be no determination of duty under Section 11A(2), which is a prerequisite for imposing penalty and interest under Section 11AB and 11AC. The appellant relied on various judgments to support this argument. On the other hand, the Revenue supported the findings of the impugned order.

The Tribunal examined the statutory provisions of Section 11AB, 11AC, and 11A to determine the validity of the demand for interest and penalty. Section 11AB pertains to interest on delayed payment of duty, while Section 11AC deals with penalties for non-levy or short-levy of duty. The Tribunal noted that Section 11A outlines the process for recovery of duties not levied or paid, emphasizing the issuance of a show cause notice and determination of duty. In this case, the show cause notice was solely for interest and penalty related to alleged incorrect availing of Cenvat credit, without any mention of duty determination under Section 11A(2). The Tribunal concluded that interest and penalty cannot be imposed without adhering to the provisions of Section 11A(1) and (2). Consequently, the Tribunal set aside the impugned order, ruling in favor of the appellant.

In conclusion, the Appellate Tribunal CESTAT Mumbai held that interest and penalty cannot be demanded without a show cause notice for duty determination under Section 11A(2). The Tribunal emphasized the importance of following statutory provisions before imposing financial obligations on the appellant. The judgment highlighted the necessity of procedural compliance in tax matters to ensure a fair and lawful process.