2018 (3) TMI 1222 - AT - Central Excise

Penalty - credit reversed on being pointed out - Held that - the appellant had reversed the CENVAT credit well in advance of the issue of notice leading to the impugned proceedings. Furthermore, it is seen that there is no evidence of any suppression or mis-representation that would justify imposition of penalty on the appellants - penalty set aside. CENVAT credit - diagnostic facility - Held that - The appellant is unable to establish the justification for contending that the diagnostic facility used by the employees was in connection with or essential to the manufacturing process. In view of this lack of justification, denial of CENVAT credit is upheld. Appeal allowed in part.

Summary

Issues:
1. Disallowance of CENVAT credit on maintenance of windmills, insurance premium, and diagnostic health checkup.
2. Eligibility of appellant for availing CENVAT credit.
3. Penalty imposed on the appellant.
4. Nexus between expenses and manufacturing process.
5. Justification for tax paid on diagnostic services.

Analysis:
1. The Commissioner upheld the disallowance of CENVAT credit on maintenance of windmills, insurance premium, and diagnostic health checkup. The appellant had reversed CENVAT availed on maintenance and insurance well before relevant show cause notices were issued. However, the appellant contested the penalty imposed.

2. The appellant claimed eligibility for availing CENVAT credit as an 'input service distributor.' The demand on maintenance of windmills was questioned due to recorded income from the sale of energy, implying energy generated was not entirely used in the manufacturing process. The appellant conceded on this issue and focused on challenging the penalty.

3. The appellant argued against the penalty, stating that they were unable to distinguish between insurance premium for employees and their families. The inability to justify the nexus with the manufacturing process led to the reversal of CENVAT credit. The tax paid on diagnostic services for employees was deemed necessary for manufacturing chemicals.

4. The Authorized Representative reiterated that the appellants were not entitled to credit under the three heads and were liable for penalty. However, the appellant had reversed the CENVAT credit before the issue of notices, and there was no evidence of suppression or misrepresentation justifying the penalty. Therefore, penalties imposed were set aside.

5. The appellant failed to establish the diagnostic facility's connection to the manufacturing process, leading to the denial of CENVAT credit and upholding of penal consequences. The lack of justification for the expenses related to the diagnostic services resulted in the denial of credit and penalty imposition.