2017 (5) TMI 550 - AT - Central Excise

Interest - penalty - cenvat credit - receipt of invoice without receipt of goods - reversal of credit on being pointed - Held that - duty has been paid by the appellants within 09 days of the availing the Cenvat Credit and same is within the same month. In that circumstances, demand of interest is not sustainable - As duty already being paid and there is no demand of interest therefore, as per the provision of Section 11 AC of the Act, penalty on the main party is required to be imposed to the tune of 25% of the duty involved. Penalty is reduced to the 25% of the duty. With regard to the penalty on the Director, the Director was having full knowledge of the availment of the Cenvat Credit by the company therefore, the Director is also liable to penalized u/r 26 of the CER, 2002. However, penalty imposable on the Director is highly excessive and the Commissioner (A) reduced the penalty of ₹ 25000/-. Appeal allowed - decided partly in favor of appellant.

Summary

Issues: Penalty imposition on the appellant and the Director for availing Cenvat Credit without receiving goods; applicability of Rule 26 of Central Excise Rules, 2002; demand of interest and penalty; reduction of penalty under Section 11 AC of the Act.

Analysis:
1. The case involves an appeal against an order where the appellant was found to have procured invoices for goods but not received them, leading to the reversal of Cenvat Credit. A show cause notice was issued for the appropriate amount, interest, and penalty. The appellant contested the penalty imposition on the Director citing non-receipt of goods and reversal of credit within the same month.

2. The appellant argued that Rule 26 of Central Excise Rules, 2002 is not applicable as goods were not received, hence penalty on the Director should not apply. Additionally, since the credit reversal was prompt, the demand for interest was deemed unsustainable, leading to the plea for setting aside the impugned order.

3. The Respondent contended that under Section 11 AC of the Act, if interest and 25% of duty as penalty are paid within 30 days of adjudication, the penalty is reduced to 25%. The Respondent emphasized that penalty on the Director is justified due to the sale of goods in the open market, citing a precedent from the Bombay High Court.

4. After hearing both parties, the Judge found that duty was paid promptly after availing the credit, making the demand for interest unsustainable. Following Section 11 AC, a penalty of 25% of the duty paid was imposed on the appellant. The penalty on the Director was upheld, considering the Director's knowledge of credit availing, but the imposed penalty was reduced to Rs. 25,000 from the initial amount.

5. In conclusion, the penalty on the appellant was reduced to 25% of the duty paid, to be settled within 30 days to avoid a 100% penalty. The penalty on the Director was confirmed at Rs. 25,000, acknowledging the Director's involvement but deeming the initial penalty excessive based on the Bombay High Court precedent.

6. The judgment highlights the importance of timely duty payment, applicability of penalties under relevant rules, and the significance of directorial responsibility in cases of credit availment.