2017 (3) TMI 719 - AT - Central Excise

Restoration of CENVAT credit - imposition of penalty - the availment of credit that had been reversed and recredited in breach of proper procedure - appellant claims that without challenge to eligibility for credit, the availment of credit cannot be disallowed - Held that - Reliance was placed by the latter on decision of the Tribunal in Commissioner of Central Excise, Belgaum v. Comfit Sanitary Napkins (I) Pvt Ltd 2004 (9) TMI 160 - CESTAT, BANGALORE which held that conversion of excess payment of duty into credit without following refund procedure is not in accordance with law. The failure to challenge the reversal ordered by the assessing officer has settled that burden on the assessee. The restoration of credit is not in order and the dispute before us is limited to the right or wrong of that restoration. - The appellant, by breaching the procedure as laid down in law for re-credit of reversed entry, has erred. Penalty set aside - appeal disposed off - decided partly in favor of appellant.

Issues Involved:
1. Availment of credit and its subsequent reversal and recredit.
2. Legality of recredit without following proper procedure.
3. Imposition of penalty under Central Excise Rules, 1944.
4. Requirement of notice and formal order for disallowance of credit.
5. Obligation to follow established procedures for rectification.
6. Applicability of doctrine of unjust enrichment in refunds.

Detailed Analysis:

1. Availment of Credit and Its Subsequent Reversal and Recredit:
The dispute centered around the appellant, M/s Jayaswals Neco Ltd, availing credit of ?16,60,225 which was disallowed in the assessment of the return for April 1995. The appellant debited ?15,14,372 in RG23C Part-II and ?1,45,593 in PLA on 13th October 1995. Subsequently, this amount was recredited, leading to proceedings against the appellant for denial of credit and imposition of penalty.

2. Legality of Recredit Without Following Proper Procedure:
The Commissioner of Central Excise, Nagpur, ordered the recovery of ?16,60,225 under Rule 57U of the Central Excise Rules, 1944, and imposed a penalty of ?2,00,000 under Rule 175Q (i)(bb). The Tribunal referenced the decision in Commissioner of Central Excise, Belgaum v. Comfit Sanitary Napkins (I) Pvt Ltd, which held that converting excess payment of duty into credit without following the refund procedure is not lawful. The Tribunal emphasized that the assessment in RT-12 should have been challenged by appeal, and the suo motu availment of credit was improper.

3. Imposition of Penalty Under Central Excise Rules, 1944:
The appellant argued that the credit was related to capital goods, and they had not been notified about the denial of their claim. The Tribunal acknowledged that without a formal order to disallow credit, mere observations in the assessment of returns do not suffice to debar an assessee from availing credit. The Tribunal cited the decision in Collector of Central Excise, Baroda v. Kosan Metal Products Ltd, which highlighted the necessity of proper notice for recovery demands under Section 11-A of the Act.

4. Requirement of Notice and Formal Order for Disallowance of Credit:
The Tribunal concluded that an erroneous process by the assessing officer does not grant the assessee the liberty to rectify any wrongs on their own. The appellant failed to challenge the reversal ordered by the assessing officer, and thus, the restoration of credit was deemed improper.

5. Obligation to Follow Established Procedures for Rectification:
The Tribunal referenced the Larger Bench decision in BDH Industries Ltd v. Commissioner of Central Excise (Appeals), Mumbai-I, which held that there is no provision under the Central Excise Act and Rules allowing suo motu taking of credit or refund without sanction by the proper officer. All types of refunds must be filed under Section 11B of the Central Excise Act and must pass the proof of not passing on the incidence of duty to others.

6. Applicability of Doctrine of Unjust Enrichment in Refunds:
The Tribunal noted that the appellant had reversed the credit under protest on 24th June 1996, before the issuance of the impugned order. The necessity of a Larger Bench to address the procedure for restoration of reversed credit illustrated the lack of clarity and clear provisions in the Central Excise Rules, 1944. Consequently, the Tribunal held that the imposition of the penalty was unjustified.

Conclusion:
The Tribunal set aside the penalty imposed on the appellant and modified the impugned order accordingly, acknowledging the procedural ambiguities and the appellant's actions under protest. The judgment emphasized the importance of following established legal procedures for credit and refund claims under the Central Excise Act and Rules.

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