2018 (8) TMI 1568 - AT - Central Excise

Penalty u/s 11AC of CEA - rejected material - cenvat credit on these rejected imported material not reversed - Held that - It is brought out from the records that immediately on being pointed out by the audit in March 2012, the appellants have reversed the credit alongwith interest and intimated the department vide their letter dt.31/3/2012 - there was no malafide on the part of the appellant and the same was only an inadvertent mistake in reversing the credit - penalty set aside - appeal allowed.

Summary

Issues involved:
1. Availing Cenvat credit on rejected imported raw materials
2. Disallowance of wrongly availed credit along with interest and penalties
3. Contesting penalty imposed under Section 11AC of the Central Excise Act, 1944

Analysis:

1. The appellant, a manufacturer of Rail Shift, Fork Shift, and Lug Shift, availed Cenvat credit on inputs and capital goods. However, during the audit, it was discovered that some imported raw materials were rejected and not utilized for manufacturing final products. The appellant failed to reverse the Cenvat credit amounting to ?7,63,789 on these rejected materials. Upon notification, the appellant paid the said amount along with interest of ?3,56,813.

2. A show cause notice was issued to the appellant proposing to disallow the wrongly availed credit, along with interest and penalties. The original authority confirmed the demand, interest, and penalties. In appeal, the Commissioner (Appeals) upheld the penalty of ?3,81,895 and ordered to adjust ?1,67,918 being the duty paid on rejected imports cleared as scrap. The duty demand of ?7,63,789 and interest were also upheld. The appellant contested only the penalty imposed and not the duty demand or interest.

3. The appellant argued that the penalty imposed under Section 11AC was unjustified as the credit was reversed promptly upon audit notification. The appellant maintained a significant credit balance, indicating no intention to evade duty payment. The Tribunal found no malafide intent on the appellant's part and considered the failure to reverse the credit as an inadvertent mistake. The appellant had cleared the rejected imports by paying the duty, further supporting the absence of any intent to evade payment. Consequently, the tribunal set aside the penalty imposed under Section 11AC, partially allowing the appeal with consequential reliefs.

This judgment highlights the importance of promptly rectifying errors in availed credits and the significance of maintaining detailed records to demonstrate compliance with tax regulations.