2018 (5) TMI 1193 - AT - Central Excise

CENVAT credit - Supplies made to SEZ - Rule 3(5) of the CCR 2004 - Penalty - Held that - as per Rule 3(5) of the CCR, 2004, which provides that when inputs are removed from factory, the manufacturer has to pay an amount equal to credit availed whereas in the present case, the appellant has availed credit of ₹ 8,15,185/- but has paid the duty of ₹ 6,10,728/-. Therefore the appellant is liable to pay the differential amount of ₹ 2,04,457/- short paid along with interest - for violation of the Rule, the appellant is liable to pay a penalty of ₹ 5000/- under Rule 15 - appeal allowed in part.

Summary

Issues:
1. Availing CENVAT credit on imported raw material under concessional duty.
2. Utilization of material by job worker in SEZ.
3. Differential duty payment and rebate claim for supplies to SEZ.
4. Alleged ineligible credit availed by the appellant.

Analysis:
1. The appellant, engaged in manufacturing components falling under Chapter 84/85 of CETAT, availed CENVAT credit on capital goods, inputs, and input services. They imported raw material under Notification No.25/99-Cus and utilized it for production. Due to production capacity constraints, the appellant used a job worker in an SEZ, leading to the sale of goods to the job worker due to SEZ rules restricting material intake on a job work basis. The appellant paid differential duty on goods sold to the job worker and claimed rebate as the supplies to SEZ were considered exports. A show-cause notice was issued for alleged ineligible credit availed by the appellant, leading to confirmation of the demand by the original authority and subsequent appeal to the Commissioner(Appeals).

2. The appellant argued that the impugned order failed to consider facts and law, highlighting the duty paid on clearance to the job worker, which was not fully considered in the decision. The appellant also pointed out discrepancies in the demanded amount and actual payment made. On the other hand, the respondent defended the impugned order, emphasizing that the appellant availed credit but paid less duty on goods cleared to the SEZ unit, citing Rule 3(5) of the CENVAT Credit Rules, 2004, which requires payment equal to credit availed upon removal of inputs from the factory.

3. Upon review, the Tribunal observed that the appellant indeed availed credit exceeding the duty paid on goods cleared to the SEZ unit, resulting in a shortfall of payment. Citing Rule 3(5) of the CCR, 2004, the Tribunal held the appellant liable to pay the differential amount along with interest. Additionally, a penalty was imposed for the violation of rules. Consequently, the appeal was partly allowed, requiring the appellant to pay the outstanding duty amount, interest, and penalty as determined by the Tribunal.

4. In conclusion, the Tribunal found the appellant in breach of payment obligations under the CENVAT Credit Rules, 2004, necessitating the payment of the shortfall along with additional penalties. The decision highlighted the importance of compliance with duty payment regulations and upheld the demand for the outstanding amount, interest, and penalty.