2018 (10) TMI 160 - AT - Central Excise

CENVAT Credit - ineligible documents - the Department took the view that the goods cleared under those invoices had not suffered any Central Excise Duty - period April, 2003 to December, 2003. Held that - During the disputed period, invoices for clearance of goods from the factory were required to be done so under cover of an invoice in conformity with Rule 11 of the erstwhile Central Excise Rules, 2002. A number of details were required to be compulsorily indicated on such invoices including Central Excise Registration, Duty payment details, etc. It is pertinent to note that none of the invoices recovered at the time of visit of the officers indicated any of these particulars, leave alone details of duty payment. From the facts on record it also emerges that none of the records available at the time of visit contained any details or documentations of such discharge of duty liability nor was any proof of such duty payment produced at the time of visit of the officers. The Show Cause Notice dated 02.02.2005 while referring to CENVAT Credit availment of ₹ 15,34,147/- and ₹ 1,18,544/- (AED(T)) by the appellants as shown in their ER-3 returns filed on 03.02.2004, has however found fault with some of the availments based on alleged ineligible documents like invoices issued by depot which is not registered, invoices not issued as per Rule 11 of the Rules and invoices issued prior to the date of registration, amounts to ₹ 6,98,444/- only. Thus, less than half of the amount claimed as CENVAT Credit by the appellant in their ER-3 returns amounting to ₹ 6,98,444/- was disputed by the Department. Penalty u/s 11AC - Held that - Though the appellants had failed to discharge the Central Excise duty, they cannot be saddled with the intention to evade payment of duty for the reason that they had enough CENVAT Credit in their accounts for the disputed period so as to enable them to pay the duty - the allegation of suppression of facts with intention to evade payment of duty so as to impose penalty under Section 11AC is absent in the present case. The equal penalty of ₹ 12,30,993/- is therefore set aside. Appeal allowed in part.

Summary

Issues Involved:
1. Duty liability on clearances without proper invoices.
2. Disallowance of CENVAT Credit based on allegedly ineligible documents.
3. Imposition of penalties.

Detailed Analysis:

1. Duty Liability on Clearances Without Proper Invoices:
The appellant’s factory was inspected by the Department on 16.12.2003, revealing that goods were cleared without payment of duty and without issuing proper invoices, as required under Rule 11 of the Central Excise Rules, 2002. The Show Cause Notice dated 02.02.2005 demanded ?12,30,993/- towards duty liability for the period 01.04.2003 to 31.12.2003, with interest and penalties. The Commissioner (Appeals) confirmed the duty demand but allowed undisputed credit of ?9,54,247/- to be appropriated against it. The Tribunal upheld the demand of ?12,30,993/- as the appellants failed to maintain records evidencing discharge of Central Excise Duty and did not produce proof of duty payment during the inspection. The appeal on this issue was dismissed.

2. Disallowance of CENVAT Credit Based on Allegedly Ineligible Documents:
The second Show Cause Notice dated 02.02.2005 proposed disallowance and recovery of ?6,98,444/- in CENVAT Credit taken on allegedly ineligible documents. The Commissioner (Appeals) upheld the disallowance. The Tribunal found that the disputed credit was based on invoices from a registered dealer, M/s. Kesharinandan Knit Fabrics (P) Ltd., which provided sufficient documentation to support the credit. The Tribunal noted that defects such as non-registration of the manufacturer’s depot and minor invoice issues were curable and not grounds for denying credit. Consequently, the Tribunal allowed the disputed CENVAT Credit of ?6,98,444/-, modifying the impugned order to allow the total credit of ?16,52,691/- to be adjusted against the duty demand.

3. Imposition of Penalties:
The Commissioner (Appeals) imposed a penalty of ?12,30,993/- under Section 11AC of the Central Excise Act, 1944, and an equal penalty under Rule 12 of the CENVAT Credit Rules, 2004. The Tribunal found that the appellants had sufficient CENVAT Credit to discharge the duty liability, indicating no intention to evade payment of duty. Thus, the penalty under Section 11AC was set aside. Additionally, since the disputed CENVAT Credit was allowed, the penalty under Rule 12 was also extinguished.

Conclusion:
The Tribunal partly allowed the appeal, upholding the duty demand while allowing the total CENVAT Credit to be adjusted against it and setting aside the penalties.