2017 (2) TMI 1033 - AT - Central Excise

Interest - penalty - the appellant has availed the credit on capital goods which was reversed on pointing out - Held that - As the appellant has availed the credit wrongly and the same has not been utilized, in that circumstance, relying on the decision of the Bill Forge 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, we hold that the appellant is not liable to pay interest. The malafide intention is missing in that circumstance, the penalty is not imposable on the appellant. Interest and penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availing of credit on capital goods under Cenvat Credit Rules, 2004.
2. Demand of interest and imposition of penalty on the appellant.
3. Interpretation of Notification No.30/04-CE regarding duty exemption.

Analysis:

Availing of Credit on Capital Goods:
The appellant was found to have availed credit on capital goods, which was not permissible under Rule 6(4) of Cenvat Credit Rules, 2004, as they were not manufacturing any dutiable goods. The show cause notices were issued for demanding the credit wrongly utilized by the appellant. The appellant contested the notices but eventually reversed the credit availed on capital goods. The adjudicating authority dropped the proceedings, which was appealed by the Revenue. The Commissioner (Appeals) demanded interest and imposed a penalty on the appellant. However, the appellant argued that the credit was not utilized for duty payment and relied on a Tribunal case to support their claim. The issue revolved around whether the appellant should be held liable for availing inadmissible credit.

Demand of Interest and Penalty:
The main issue was whether interest could be confirmed against the appellant and if a penalty could be imposed. The appellant contended that since they had already reversed the credit and it was not utilized, no interest should be payable as per a decision by the Karnataka High Court. The appellant also argued that there was no malafide intention to avail inadmissible credit, hence penalty should not be imposed. The Tribunal agreed with the appellant's arguments and set aside the demand of interest and penalty, citing the absence of malafide intention as a crucial factor in their decision.

Interpretation of Notification No.30/04-CE:
The Tribunal examined Notification No.30/04-CE, which provided full duty exemption on specified items under the condition that no input duty credit was availed. The appellant had not taken any input duty credit on goods cleared at nil rate of duty under this notification. However, they had availed credit on capital goods, which was reversed upon identification. This issue highlighted the importance of complying with the conditions specified in notifications to claim exemptions correctly.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the demand of interest and penalty due to the absence of malafide intention and the reversal of the credit availed on capital goods. The judgment emphasized the significance of adhering to the provisions of Cenvat Credit Rules and relevant notifications to avoid wrongful availment of credits and subsequent liabilities.