2016 (12) TMI 390 - AT - Central Excise

CENVAT credit - manufacture of Printing Inks, Resins etc falling under Chapter 32 and 39 of Central Excise Tariff Act, 1985 and registered with the Central Excise Department w.e.f. 29.05.2009 - After Registration, on receiving various inputs, they availed CENVAT Credit on the same and later, the said inputs were removed as such to their sister concern, on reversal of credit availed on such quantity of input due to delay in commercial production which commenced only in October 2010 - whether CENVAT credit availed is correct? - Held that - I find that because of non-receipt of various statutory permissions as well as electricity and water connections, the Appellants could not commence the commercial production during the said period, accordingly, to avoid the damage to the inputs received and lying in stock were cleared to their sister concern on reversal of credit availed on such inputs under proper excise invoices mentioning the relevant rule 3(5) of CCR,2004. All these facts have been disclosed by the Appellants in their statutory ER1 returns. The sample copy of ER1 return filed by the Appellant for the month of March 2010 duly acknowledged by the Department reveals that they have discharged the credit availed by them during the relevant period on clearance of inputs. Also, the statement furnished by the learned Chartered Accountant for the Appellant, which was submitted along with reply to the Show Cause Notice, indicates that receipt of inputs and clearance of the same as such were made on payment of appropriate duty/reversal of credit initially availed. Besides, it is also not in dispute that the commercial production started from Oct. 2010 - demand set aside - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
1. Availment of CENVAT Credit on inputs cleared to sister concern due to delay in commercial production.
2. Imposition of penalty on the director of the appellant company.

Analysis:

Issue 1: Availment of CENVAT Credit on inputs cleared to sister concern due to delay in commercial production
The case involves the appellant, engaged in manufacturing Printing Inks and Resins, who availed CENVAT Credit on inputs but later cleared them to their sister concern due to delays in commencing commercial production. The demand notice was issued for recovery of the credit availed during this period. The appellant argued that the inputs were cleared to avoid damage during storage and that they had reversed the credit availed on these inputs. The Chartered Accountant for the appellant presented evidence, including excise invoices and ER1 returns, to support their contention that they had not cleared any inputs without payment of duty or reversal of CENVAT Credit. The appellate tribunal found that the inputs were cleared to the sister concern with proper documentation and reversal of credit as per CENVAT Credit Rules. The tribunal noted that the appellant had disclosed these actions in their statutory returns and had started commercial production later. Therefore, the tribunal set aside the demand, ruling in favor of the appellant.

Issue 2: Imposition of penalty on the director of the appellant company
The penalty imposed on the director of the appellant company was based on the alleged wrong availment of credit. However, since the tribunal found in favor of the appellant regarding the availment and clearance of inputs to the sister concern, the penalty was also set aside along with the demand. The tribunal's decision was supported by the evidence provided by the appellant and the acknowledgment of compliance with excise rules in their statutory returns. The tribunal's ruling indicates that the penalty was not justified in this case due to the circumstances surrounding the clearance of inputs and the subsequent commencement of commercial production. Consequently, the penalty imposed on the director was revoked along with the demand, providing relief to the appellant company.

In conclusion, the appellate tribunal's judgment in this case favored the appellant on both issues, ruling that the demand for recovery of credit and the penalty imposed on the director were not sustainable. The tribunal found merit in the appellant's arguments and evidence regarding the clearance of inputs to the sister concern and the reversal of CENVAT Credit, leading to the setting aside of the demand and penalty, with consequential relief allowed as per the law.