2018 (8) TMI 689 - AT - Central Excise

Reversal of CENVAT Credit - credit reversed on the input removed as such, is lesser than the CENVAT Credit taken on such inputs - Held that - It cannot be disputed that the goods were removed only to the sister unit of the appellant. In a plethora of decisions, higher appellate forums have consistently held that in such situations there would be revenue neutrality, since even if the credit had been reversed or the duty paid, the sister unit would well have been able to take the same amount as input credit. The ingredients attracting imposition of penalty under Section 11AC of the Act are not present in this case - the imposition of equal penalty of ₹ 2,85,27,320/- under Rule 15 of the CENVAT Credit Rules, 2004 read with Section 11AC of the Act, cannot sustain and requires to be set aside. As this submission only relates to the method and manner of calculation of interest, the matter is remanded to the adjudicating authority only for the limited purpose of ascertaining the correctness and interest worked out after taking the contentions of the appellants into consideration - appeal allowed by way of remand.

Summary

Issues:
1. Demand of duty with interest and imposition of penalties under CENVAT Credit Rules.
2. Applicability of interest rate and penalties.
3. Revenue neutrality in transactions with sister unit.
4. Imposition of penalty under Section 11AC of the Act.

Analysis:

Issue 1: Demand of duty with interest and imposition of penalties under CENVAT Credit Rules
The case involved the appellant, engaged in manufacturing automobile parts, who cleared inputs without reversing the proportionate CENVAT Credit availed. The Commissioner confirmed the demand of duty with interest and imposed penalties under Rule 15 of C.C.R. 2004. The appellant contended that no interest should be levied due to revenue neutrality. The Tribunal noted that the appellant had paid a significant amount towards wrongly availed credit and interest liability even before the Show Cause Notice. The Tribunal found merit in the appellant's contention of revenue neutrality as the goods were cleared to their sister unit, leading to the imposition of penalties being set aside.

Issue 2: Applicability of interest rate and penalties
The appellant argued against the interest rate charged and penalties imposed. The Tribunal remanded the matter to the adjudicating authority to ascertain the correctness of the interest calculation. The Tribunal allowed the appeal on the grounds related to interest calculation but did not interfere with other aspects of the impugned order.

Issue 3: Revenue neutrality in transactions with sister unit
The Tribunal considered the plea of revenue neutrality due to transactions with the sister unit. It was highlighted that the goods were predominantly cleared to the appellant's sister unit, leading to a revenue-neutral situation. Citing various case laws, the Tribunal emphasized that if the duty paid by the appellant was available as input credit to the sister concern, the demand of duty on the appellant would be of no consequence.

Issue 4: Imposition of penalty under Section 11AC of the Act
After considering all factors, including the appellant's compliance with filing returns and undergoing audits, the Tribunal found that the ingredients for imposing a penalty under Section 11AC were not present. Consequently, the imposition of an equal penalty was set aside.

In conclusion, the Tribunal allowed the appeal based on the grounds related to interest calculation and penalty imposition, highlighting the concept of revenue neutrality in transactions with the appellant's sister unit. The judgment emphasized the importance of considering all relevant factors in determining duty demands, interest rates, and penalties under the CENVAT Credit Rules.