2017 (10) TMI 263 - AT - Central Excise

Transfer of the inputs / capital goods to the EOU - credit not reversed - Held that - the appellant unit namely SFL-III has to reverse the credit. Soon after being pointed out, the appellants have reversed credit of ₹ 15,49,876/- only - since the situation is entirely a revenue neutral situation, being inter-unit transfers, the penalty imposed is unwarranted - the penalties imposed u/r 15(2) of CENVAT credit Rules, 2004 read with Section 11AC of the CEA, 1944 set aside - decided partly in favor of appellant.

Summary

Issues:
1. Availment of credit by SFL-III unit for goods transferred to EOU unit.
2. Validity of demand raised by authorities.
3. Imposition of penalty.

Analysis:

Issue 1:
The appellant, M/s. Sundram Fasteners Ltd. (SFL - III), availed credit for goods intended for export but inadvertently did not reverse the credit when these goods were transferred to the EOU unit. The appellant realized the mistake after the commercial production in EOU started in 2004. The appellant voluntarily reversed a portion of the credit upon realizing the error. The authorities issued a show cause notice proposing a demand for the un-reversed credit amount. The appellant argued that the extended period for demand is not sustainable as they had provided details of the credit availed when officers visited the premises. The appellant contended that there was no intention to evade duty as the situation was revenue neutral due to inter-unit transfers.

Issue 2:
The appellate tribunal acknowledged that the inputs/capital goods received by SFL-III unit were indeed transferred to the EOU unit, necessitating the reversal of credit. The tribunal noted that the appellant had reversed a portion of the credit upon being informed of the oversight. Consequently, the tribunal upheld the demand made by the authorities, as the appellant failed to reverse the entire credit amount. However, considering the revenue-neutral nature of the situation, the tribunal deemed the penalty imposed as unwarranted. Therefore, the tribunal set aside the penalties while upholding the demand for CENVAT credit and interest thereon.

Issue 3:
During the hearing, the appellant's counsel argued that the penalty should be set aside due to the revenue-neutral nature of the situation, citing a relevant judgment of the Hon’ble High Court of Gujarat. The tribunal agreed with this argument and set aside the penalties imposed under Rule 15(2) of CENVAT Credit Rules, 2004, along with Section 11AC of the Central Excise Act, 1944. The tribunal modified the impugned order to exclude the penalty, maintaining the demand for CENVAT credit and interest.

In conclusion, the appeal was partly allowed, with the tribunal setting aside the penalties while upholding the demand for CENVAT credit and interest, considering the revenue-neutral aspect of the inter-unit transfers.