2016 (6) TMI 761 - AT - Central Excise

Denial of credit on MS items - Held that - In India Cements Ltd. Vs. CESTAT, Chennai 2015 (3) TMI 661 - MADRAS HIGH COURT , the Hon ble High Court of Madras held that credit is admissible on MS items used for fabrication of structural supports. Such supports and fixation is necessary for functioning of the plant/machinery/equipment without movement and vibration without which the process of manufacturing could not be done. Applying the ratio laid in the above hold that the credit on MS items used as inputs is admissible Irregular credit availed on capital goods - Held that - The original authority has stated that these items are used as such in the factory, as parts/components of the cement plant/machinery and therefore are capital goods. We do not find any evidence to take a different view. The allegation with regard to the credit availed on these items like air slide, bucket elevator, roto packer etc. is that being capital goods it is only a case of premature availment of credit as the appellants could avail the credit in the subsequent year. Therefore, the recovery of the irregularly availed credit in excess of 50% (Rs.16,22,615/-) is not justified. Taking into consideration the violation of the provision,it is find that appellants are liable to pay the interest on the irregularly availed credit on capital goods. The contention raised on behalf of appellant is that, the appellants did not utilize the credit availed and therefore there is no interest liability it is held that in the peculiar facts, when the appellant has contravened the provisions, the Revenue has to be compensated for the irregular credit availed. In view thereof, the demand/recovery of credit is set aside, whereas the demand of interest on the said amount is sustainable. The appellant is liable to pay interest on the amount till the date of reversal or if not reversed, till date on which the appellant could have availed remaining 50% credit on capital goods in the subsequent year. Enhancement of penalty - Held that - d. In the instant case, the adjudicating authority has not imposed any penalty for irregular availment of credit on capital goods. If no penalty is imposed, the department has to file an appeal challenging the non-imposition of penalty. Only then can the Commissioner consider whether a penalty not imposed can be imposed. Section 35A does not empower the Commissioner(Appeals) to impose a fresh penalty under the guise of enhancement. The Commissioner(Appeals) has proceeded as though some penalty (nil penalty) is imposed by the adjudicating authority and that he is enhancing the nil penalty. Under no stretch of imagination can there be imposition of nil penalty. Either penalty is imposed or no penalty is imposed. The no penalty situation cannot be taken as nil penalty and be enhanced under Section 35A(3) of the Central Excise Act. When the Department has not filed appeal for non-imposition of penalty, the Commissioner(Appeals) cannot impose a new penalty invoking Section 35A(3). The penalty of ₹ 1,60,000/- imposed by Commissioner(Appeals) invoking Section 35A(3) is beyond his powers and therefore is set aside.

Summary

Issues:
1. Irregular availment of credit on MS items.
2. Irregular credit availed on capital goods.
3. Enhancement of penalty under Section 35A(3) of the Central Excise Act.

Analysis:

1. Irregular availment of credit on MS items:
The appellant contended that the credit on MS items used for fabrication of support structures should be admissible. The Tribunal analyzed various judgments and held that credit on MS items used as inputs is admissible based on the necessity for functioning of plant/machinery/equipment. The denial of credit was overturned, and demand, interest, and penalty on this count were set aside.

2. Irregular credit availed on capital goods:
The appellant had availed 100% credit on various capital goods in contravention of the CENVAT Credit Rules, 2004. The Tribunal found that the appellant prematurely availed the credit but could have availed 50% in the subsequent year. The demand for recovery of excess credit availed on capital goods was set aside, but the demand for interest on the irregularly availed credit was upheld.

3. Enhancement of penalty under Section 35A(3) of the Central Excise Act:
The Commissioner(Appeals) had imposed a penalty invoking Section 35A(3) without any penalty being initially imposed by the adjudicating authority. The Tribunal ruled that Section 35A does not empower the Commissioner(Appeals) to impose a fresh penalty under the guise of enhancement when no penalty was initially imposed. The penalty imposed by the Commissioner(Appeals) was deemed beyond his powers and set aside.

In conclusion, the Tribunal allowed the appeal partly by allowing credit on MS items, setting aside the demand for excess credit availed on capital goods, upholding the interest demand on irregularly availed credit on capital goods, and setting aside the penalty imposed under Section 35A(3) of the Central Excise Act.