2017 (1) TMI 153 - AT - Central Excise

Imposition of penalty - irregular credit on the capital goods - credit reversed prior to issue of SCN - Held that - The appellants have reversed the irregularly availed credit prior to utilization and even prior to issue of SCN. The question whether the appellants are liable to pay penalty when the credit which was irregularly availed was reversed before utilization has been decided in favor of the assessee in the case of CCE & ST, LTU, Bangalore Vs M/s Bill Forge Pvt Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT , where it was held that once the entry was reversed, it is as if that the Cenvat credit was not available - further reliance also placed in the case of M/s Hemarus Industries Ltd., Vs CCE, Kolhapur 2016 (11) TMI 54, CESTAT, Mumbai , where it was held that mere taken of CENVAT credit facilities is not at all sufficient for claiming of interest as well as penalty - penalty not imposable - appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Irregular availing of CENVAT Credit on capital goods.
2. Imposition of penalty under Rule 15 of CENVAT Credit Rules, 2004 and Rule 25 of Central Excise Rules, 2002.
3. Challenge to penalty imposition only.

Analysis:

1. The appellants, engaged in manufacturing tanks and gas coolers, faced a Show Cause Notice alleging irregular availing of CENVAT Credit on capital goods, specifically a rolling machine that was removed from the factory premises to an unregistered location. The adjudicating authority confirmed the duty demand, interest, and imposed penalties under relevant rules.

2. The department appealed to the Commissioner (Appeals) citing unequal penalty imposition by the adjudicating authority. The Commissioner upheld the duty demand, interest, and imposed an equal penalty. The appellant then challenged only the penalty imposition in the present appeal.

3. The appellant's counsel argued that the irregularly availed credit was reversed and interest paid upon audit party's notification. Citing precedents, the counsel contended that since the credit was reversed before utilization, no penalty should be imposed, relying on cases like CCE & ST, LTU, Bangalore Vs M/s Bill Forge Pvt Ltd., M/s Hemarus Industries Ltd., Vs CCE, Kolhapur, and M/s Nova Petrochemicals Ltd., Vs CCE, Ahmedabad-II.

4. The Assistant Commissioner reiterated the findings supporting the penalty imposition, stating that the irregular credit availed by the appellant warranted penalty payment. However, the Member (Judicial) noted that the appellant had reversed the irregularly availed credit before utilization and even before the issuance of the Show Cause Notice. Relying on the appellant's cited cases, the Member held that the penalty imposed was unsustainable, ultimately setting aside the impugned order and allowing the appeal with any consequential reliefs.

This judgment highlights the importance of timely rectification of irregularities in availing credits to avoid penalty imposition, as demonstrated by the reversal of credit before utilization leading to the penalty being deemed unsustainable in this case.