2017 (11) TMI 1241 - AT - Central Excise

Penalty - CENVAT credit availed on input base oil , which was cleared as such to other unit - amount paid on being pointed out before issuance of SCN - Held that - the appellant has paid the short-paid immediately on being pointed out by the department and well before issuance of the show cause notice - Section 11(2)(AB) states that no show cause notice shall be issued if the duty along with interest as pointed out by Central Excise officer is paid by the appellant - penalty imposed u/s 11AC of the Act r/w Rule 15(2) of CCR, 2004 set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Violation of Rule 3(5) of CENVAT Credit Rules, 2004 leading to short-paid duty, imposition of penalty under section 11AC of the Central Excise Act, contesting penalty imposition due to immediate payment of short-paid duty before show cause notice.

Analysis:
The case involved the appellant, engaged in manufacturing lubricating oil, availing CENVAT credit on inputs like base oil, CBFS, additives, and packing materials from M/s. Chennai Petroleum Corporation Ltd. The issue arose when it was discovered that the appellant had availed CENVAT credit on base oil but removed it to other units without paying appropriate duty and by reversing lesser duty. The appellant received inputs through dedicated pipelines, used them in manufacturing different grades of lubricating oil, and cleared them to other locations without reversing proportionate credit availed on such inputs. This led to a show cause notice alleging a violation of Rule 3(5) of CENVAT Credit Rules, 2004, demanding short-paid duty of &8377; 1,20,76,058/- along with interest and imposing penalty under section 11AC of the Central Excise Act.

During the proceedings, the appellant contended that the short-payment was due to an accounting mistake, and they promptly paid the differential duty upon detection by the department, even before the issuance of the show cause notice. The appellant argued against the imposition of penalty, claiming a revenue-neutral situation since the duty paid would benefit sister units. On the other hand, the department emphasized the clear intention to evade duty payment due to the short-payment and invoked the extended period of limitation for raising the demand.

After considering both arguments, the Tribunal noted that the appellant had paid the short-paid duty immediately upon detection and well before the show cause notice, as required by Section 11(2)(AB). The Tribunal also acknowledged the revenue-neutral aspect highlighted by the appellant. Citing precedents like Deepak Cables and Temmco RC India Pvt. Ltd., which considered similar revenue-neutral scenarios to set aside penalties, the Tribunal found no grounds to sustain the penalty imposed under section 11AC of the Act. Consequently, the impugned order was modified to set aside the penalty, partially allowing the appeal with consequential relief.

In conclusion, the Tribunal's decision focused on the prompt payment of the short-paid duty, the revenue-neutral nature of the situation, and the absence of grounds to uphold the penalty under section 11AC. The judgment highlighted the importance of immediate compliance upon detection of errors and considered relevant precedents in reaching its decision to set aside the penalty.