2018 (4) TMI 212 - AT - Central Excise

Penalty - CENVAT credit reversed before issuance of SCN - Held that - the penalty in this case is not sustainable as the issue relates to interpretation of law and the appellant has not suppressed any material fact from the Department with intention to evade payment of duty and has shown the availment of credit in the relevant returns and CENVAT records maintained by them - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Disallowance and demand of CENVAT credit
- Imposition of penalty under Section 11AC of the Central Excise Act

Analysis:
1. Disallowance and demand of CENVAT credit: The appellant, a sugar manufacturer, availed CENVAT credit on items like MS angles, plates, channels, beams, etc., treating them as capital goods under Rule 2(a) of the CENVAT Credit Rules, 2004. However, during an audit, it was found that these items did not fall within the definition of capital goods under the specified category. A show-cause notice was issued proposing duty demand, interest, and penalty for alleged suppression of facts. The original authority confirmed the proposals, but the Commissioner(Appeals) partially allowed the appeal. The appellant contended that they were entitled to credit on components of capital goods as part of the manufacturing plant, and that they had already reversed a substantial amount upon audit notification. The appellant also argued that the imposition of penalty was not sustainable due to the debatable nature of the issue and lack of intent to evade duty. The Tribunal found that the appellant had a strong case on merits, had reversed the credit before the show-cause notice, and had not suppressed any material fact. Consequently, the Tribunal held that the imposition of penalty was not legally tenable and allowed the appeal, dropping the penalty.

2. Imposition of penalty under Section 11AC: The issue of penalty under Section 11AC of the Central Excise Act was a key aspect of the appeal. The appellant argued that the penalty was not justified as they had not suppressed any material fact with the intent to evade duty. The appellant maintained that the issue of CENVAT credit on the disputed items was subject to interpretation and had been the subject of dispute with decisions on both sides. The Tribunal agreed with the appellant, noting that the appellant had disclosed the availment of credit in relevant returns and CENVAT records, indicating transparency and lack of intent to evade duty. Considering these factors, the Tribunal held that the imposition of penalty was not legally sustainable and consequently dropped the penalty under Section 11AC of the Central Excise Act. The appeal was allowed in favor of the appellant on this issue.

In conclusion, the Tribunal found in favor of the appellant on both the disallowance and demand of CENVAT credit and the imposition of penalty under Section 11AC of the Central Excise Act. The penalty was dropped due to the lack of intent to evade duty, transparency in record-keeping, and the debatable nature of the issue. The appeal was allowed, and the penalty was set aside.