2018 (7) TMI 1371 - HC - Central Excise

Alternative remedy of appeal - CENVAT Credit - Held that - It is true that as against the order impugned in this Writ petition, an appeal remedy is very much available to the Writ petitioner. In fact in the earlier round, the petitioner did successfully avail the appeal remedy - This Court is therefore of the view that when the order of the Authority does not consider the contentions of the assessee, the appeal remedy can certainly be bypassed and this Court would be justified in directly entertaining the challenge to the impugned order - This Court has to necessarily sustain the contention of the petitioner s counsel that the Writ petitioner having rightly availed the Cenvat input credit originally, cannot be called upon to reverse the same, merely because it was stepping into exemption regime. This Court would fully concur with the contention of the petitioner s counsel that the Authority erred in levying the penalty equivalent to the amount demanded. Petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Interpretation of Central Excise Rules regarding reversal of Cenvat credit.
2. Validity of demand for Cenvat credit and imposition of interest and penalty.
3. Applicability of exemption regime for small scale industries.
4. Consideration of limitation period for recovery of duties.
5. Enhancement of penalty post-remand in absence of cross-appeal by the Department.

Analysis:
1. The judgment concerns the interpretation of Central Excise Rules regarding the reversal of Cenvat credit. The petitioner, a government undertaking engaged in manufacturing various products, had been granted exemption for small scale industries. The Commissioner of Central Excise contended that the petitioner should have reversed inputs upon entering the exemption regime, as per relevant rules.

2. The issue of validity of demand for Cenvat credit, interest, and penalty arose from a show cause notice issued to the petitioner. The order-in-original confirmed the demand, interest, and imposed a penalty. The petitioner appealed, and upon remand, the impugned order was passed, confirming the demand and imposing a penalty equivalent to the amount demanded, leading to the challenge in the writ petition.

3. The applicability of the exemption regime for small scale industries was crucial in this case. The petitioner had availed Cenvat input credit, which the court held as indefeasible based on Supreme Court and High Court precedents. The court emphasized that validly taken credit need not be reversed solely due to entering the exemption regime.

4. The consideration of the limitation period for recovery of duties was another significant aspect. The court noted that the demand beyond one year from the relevant date was unsustainable, as the petitioner, a government undertaking, had not suppressed any material transaction. The show cause notice being issued on a specific date limited the recoverable period.

5. Lastly, the enhancement of penalty post-remand without a cross-appeal by the Department raised concerns. The court cited the principle of 'no reformatio in peius,' emphasizing that a party should not be placed in a worse position due to filing an appeal. The court concurred with the petitioner's contention that the penalty equivalent to the amount demanded was unjustified, rendering the impugned order unsustainable.

In conclusion, the court quashed the impugned proceedings and allowed the writ petition, highlighting the errors in the demand for Cenvat credit, interest, and penalty, along with the incorrect enhancement of penalty post-remand.