2018 (10) TMI 1269 - AT - Central Excise

Penalty u/r 15 (2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 - due to inadvertence, Development Cess paid on the imported commodity was taken as CENVAT credit, which was reversed on being pointed out - Held that - The audit officers had not specifically alleged regarding the involvement of the appellant in the activities of fraud, collusion, suppression etc., in defrauding the Government revenue. Thus, under such circumstances, the provisions of sub-rule (2) of Rule 15 read with section 11AC ibid cannot be invoked for imposition of the penalty on the appellant. Also, reliance placed in the case of Gaurav Mercantiles Ltd. 2005 (8) TMI 120 - BOMBAY HIGH COURT , wherein imposition of penalty was set aside, holding that once duty is paid prior to issuance of show cause notice, the proceedings have to be stopped and the department cannot proceed further for imposition of penalty. Penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Penalty imposition under Rule 15 (2) of CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 based on irregularly availed CENVAT credit.

Analysis:
The appeal challenged the penalty upheld by the Commissioner of Central Excise (Appeals) under Rule 15 (2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. The appellant argued that the irregular CENVAT credit was inadvertently taken due to Development Cess payment on imported goods, which was later rectified upon audit officers' observation before any show cause notice. The appellant maintained a sufficient CENVAT account balance, and the credit details were accurately reported in monthly returns, negating allegations of suppression or fraud. Citing the judgment of the Bombay High Court, the appellant contended that penalty imposition was unjustified under the circumstances.

The Revenue, represented by the Learned AR, supported the impugned order's findings, emphasizing that the reversal of irregularly availed CENVAT credit post-audit objection exposed the appellant to statutory penalties. Referring to judgments from the Allahabad High Court, the Revenue argued for penalty imposition based on the subsequent correction of the irregular credit.

After hearing both sides and examining the case records, the Member (Judicial) observed that the appellant maintained sufficient CENVAT account balance throughout, with accurate reporting in returns and registers. The audit officers did not specifically allege fraud or collusion by the appellant, and the reversal of credit pre-show cause notice was noted. Relying on the Bombay High Court's judgment, the Member concluded that penalty imposition was unwarranted once duty was paid before the notice issuance. The judgments cited by the Revenue were deemed distinguishable as they did not address substantiated charges of fraud or collusion. Consequently, the impugned order's penalty imposition was set aside, ruling in favor of the appellant.