2016 (12) TMI 328 - AT - Central Excise

CENVAT credit - recovery of credit availed with interest and equal penalty imposed u/r 15(4) of CCR, 2004 read with Section 11AC of the CEA, 1944 - Input Service used in or in relation to the trading activities - Held that - I find that the authorities below has not recorded any reasoning on the facts and evidences by which it could be concluded that the appellant had availed Cenvat Credit on Input Services used by them for trading activities during the relevant period by resorting into suppression or mis-declaration of the facts. No doubt the inadmissibility of credit taken by the appellant came to the notice of the Dept during the course of audit, but, that itself, in my opinion, cannot be the circumstance and be construed as availment of credit by way of suppression or mis-declaration of facts. In the result, the impugned order modified and the appeal is partly allowed to the extent of imposition of penalty - appeal disposed off - decided partly in favor of appellant-assessee.

Issues:
1. Availment of Cenvat Credit on Input Services for trading activities.
2. Imposition of penalty under Rule 15(4) of CCR, 2004 read with Section 11AC of CEA, 1944.
3. Applicability of penalty provision to manufacturers.

Analysis:

Issue 1: Availment of Cenvat Credit on Input Services for trading activities
The appellant had availed Cenvat Credit of a specific amount on various Input Services used in or in relation to trading activities during the relevant period. However, upon being notified by the Department, the appellant reversed the amount and paid interest accordingly. A show cause notice was issued for recovery/appropriation of the credit along with a proposal for penalty imposition. The appellant contended that there was confusion regarding the eligibility of Cenvat Credit on Input Services used in trading activities before April 2011. The appellant argued that they had reversed the credit upon department notification, indicating no intention for suppression or mis-declaration of facts.

Issue 2: Imposition of penalty under Rule 15(4) of CCR, 2004 read with Section 11AC of CEA, 1944
The penalty was imposed under Rule 15(4) of CCR, 2004 read with Section 11AC of CEA, 1944 by the adjudicating authority. The appellant challenged the penalty imposition, asserting that it was not applicable in their case. The appellant's representative argued that the penalty provision applies to service providers, not manufacturers like the appellant. The appellant maintained that they had availed the credit under a bona fide belief in eligibility and promptly reversed it upon department notification, indicating no intention to avail the credit through suppression or mis-declaration of facts.

Issue 3: Applicability of penalty provision to manufacturers
The appellant's representative contended that the penalty provision under Rule 15(4) of CCR, 2004 applies to service providers, not manufacturers. The appellate authority noted that there was a lack of reasoning in the lower authorities' findings to conclude that the appellant had availed the credit through suppression or mis-declaration of facts. The appellate authority found that the mere notice of inadmissibility during an audit does not automatically imply availment through suppression or mis-declaration. Consequently, the impugned order was modified, and the penalty imposition was partially allowed, acknowledging the appellant's arguments and reversing the penalty decision.

This judgment highlights the importance of clear reasoning and evidence in determining the availment of credits and the imposition of penalties under relevant provisions of the law.

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