2016 (10) TMI 953 - AT - Central Excise

Imposition of penalty - CENVAT credit reversed - structural items used for fabrication of support structures for capital goods such as overhead crane, wire drawing machinery etc - payment of duty with interest on demand - whether the imposition of penalty justified on the ground that wrongful CENVAT credit availed alleging suppression of facts and invoking the extended period of limitation? - Section 11A - Held that - once the duty disputed is paid alongwith the interest payable under Section 11(AA), no show cause notice is to be served on the assessee, however, it is to be noted that this waiver of penalty is entitled only in those cases where there is no allegation of fraud, suppression or collusion. In the present case, I find that such allegations have been made in the show cause notice issued to the appellant. However, in the light of the fact that the availment of Cenvat credit on structural items has been in dispute for a long time, allegations of suppression cannot be made against the appellant. Under such circumstances, the benefit of waiver of penalty provided under Section 11A (2) is extendable to the appellant - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Disallowance of Cenvat credit on structural items used for fabrication of support structures for capital goods.
2. Imposition of penalty under Section 11A for alleged suppression of facts.
3. Applicability of waiver of penalty under Section 11A(2) when duty and interest are paid.

Issue 1: Disallowance of Cenvat credit on structural items
The appellant, engaged in manufacturing excisable goods, availed Cenvat credit on structural items used for fabricating support structures for capital goods. During an audit, it was found that an inadmissible Cenvat credit of ?3,56,607 was claimed. The appellant reversed this credit upon audit observation. However, a show cause notice was issued proposing disallowance, interest, and penalty. The Original Authority confirmed the demand, interest, and penalty. The Commissioner (Appeals) upheld the penalty, leading to the appeal before the Tribunal. The appellant did not contest the disallowance but argued against the penalty imposition. The Tribunal noted that the issue of admissibility of Cenvat credit on structural items for support structures had been disputed and referred to a Larger Bench previously. Citing relevant case laws, the Tribunal upheld the disallowance of Cenvat credit as the duty amounts and interest had been paid, but no intention to evade payment was found.

Issue 2: Imposition of penalty under Section 11A
The appellant argued that no penalty should be imposed as they had paid the disputed Cenvat credits before receiving any notice under Section 11A(a). They contended that since interest was also paid, no penalty should be levied. Section 11A allows waiver of penalty if duty and interest are paid before notice, provided there is no fraud, suppression, or collusion. The show cause notice alleged suppression, but given the long-disputed nature of the Cenvat credit issue, suppression could not be attributed to the appellant. Consequently, the Tribunal found the appellant entitled to the waiver of penalty under Section 11A(2) and set aside the penalty imposed.

Issue 3: Applicability of waiver of penalty under Section 11A(2)
The Tribunal analyzed Section 11A, emphasizing that once duty and interest are paid, no show cause notice should be served unless there are allegations of fraud, suppression, or collusion. Despite such allegations in the notice, the Tribunal concluded that due to the long-disputed nature of the Cenvat credit issue, suppression could not be established. Therefore, the appellant qualified for the waiver of penalty under Section 11A(2) and the impugned order was set aside, allowing the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the penalty imposed under Section 11A due to the payment of disputed Cenvat credits and interest, and the absence of fraudulent intentions or suppression.