2017 (3) TMI 225 - HC - Central Excise

CENVAT credit - Rule 8(3A) - Held that - Rule 8(3A) that had prevented the adjustment of cenvat credit, in certain circumstances, was no longer a barrier. This meant that with respect to the payments towards duty or any other amounts, cenvat credit was available - Furthermore, Section 11AC (2) itself clarifies that in case the determination of the order-in-original of the adjudicating authority undergoes a change at the appellate level where the concerned authority might reduce or grant complete relief that order would prevail for the purpose of determination of any amount or penalty u/s 11 AC - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Interpretation of Section 11AC regarding penalty imposition.
2. Applicability of Rule 8(3A) on cenvat credit.
3. Validity of CESTAT's decision based on Gujarat High Court ruling.

Analysis:

1. The primary issue in this case revolves around the interpretation of Section 11AC concerning the imposition of penalties. The Commissioner of Central Excise had confirmed a demand against the respondent, leading to a reduced duty liability and penalty. The Commissioner reduced the duty liability to &8377; 15,54,266 after considering the amount deposited and reduced the penalty amount based on a judgment by CESTAT. However, the Revenue contested this decision, arguing that the penalty under Section 11AC should be at least 25% of the determined amount due to deliberate withholding of tax by the respondent.

2. Another significant issue raised was the applicability of Rule 8(3A) on cenvat credit, which was a crucial factor in determining the relief granted to the assessee. The CESTAT relied on a decision by the Gujarat High Court in a similar case to rule that Rule 8(3A) was ultra vires, allowing the assessee to claim credit exceeding &8377; 11 lakhs. This ruling influenced the outcome of the appeal, resulting in relief being granted to the assessee.

3. The final issue addressed the validity of the CESTAT's decision based on the Gujarat High Court ruling regarding the applicability of Rule 8(3A). The Tribunal's decision to reject the Revenue's appeal and grant relief to the assessee was challenged by the Revenue, emphasizing the mandatory nature of Section 11AC for penalty imposition. However, the High Court upheld the CESTAT's decision, noting that the CESTAT's reasoning was supported by the interpretation of Section 11AC and the impact of the appellate level's determination on penalty imposition.

In conclusion, the High Court dismissed both appeals and disposed of all pending applications, affirming the CESTAT's decision based on the interpretation of Section 11AC and the applicability of Rule 8(3A) as influenced by the Gujarat High Court ruling.