2018 (11) TMI 10 - AT - Central Excise

Penalty - CENVAT Credit on input services - irregular availment - benefit of Section 11A(2) of the Act for non issuance of show cause notice, only for imposition of penalty - Whether under the circumstances of the case, the provisions of the sub-rule (2) of Rule 15 of the CENVAT Credit Rules, 2004 read with Section 11AC of the Act can be invoked, justifying imposition of penalty on the appellant? Held that - Sub-rule (2) of Rule 15 of the Rules mandates that in case of wrong availment or utilisation of CENVAT credit, attributable to the reason of fraud, collusion or willful misstatement or suppression of facts, or contravention of any of the provisions of the Excise Act, or of the rules made thereunder, with intent to evade payment of duty, then the manufacturer shall also be liable to pay penalty in terms of the provisions of Section 11AC of the Act. The undisputed facts are that the availment of irregular CENVAT credit was disclosed by the appellant in the monthly ER-1 returns filed before the department and the credit so availed was not utilized for payment of Central Excise duty on removal of the final products. This fact is evident from the records of the appellant that it had huge balance of CENVAT credit at the time between taking of such irregular credit and subsequent reversal thereof. Thus, under the circumstances of the case, it cannot be said that taking of irregular CENVAT credit was due to fraudulent intent on the part of the appellant to defraud the Government revenue. Penalty do not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Denial of CENVAT credit on taxable services like rent-a-cab, workmen's compensation insurance, book binding, and cricket ground preparation; Imposition of penalty under Rule 15(2) of CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.

Analysis:

Issue 1: Denial of CENVAT Credit and Imposition of Penalty
The appellant did not contest the disallowance of CENVAT credit, which was later reversed. However, the contention was against the imposition of penalty. The appellant argued that the penalty was unjustified as the irregular credit was reversed before the show cause notice, and there was no fraudulent intent. The appellant relied on the Supreme Court judgment in Union of India v. Rajasthan Spinning and Weaving Mills to support the argument. On the contrary, the Revenue representative cited the case of Union of India v. Dharmendra Textile Processors to justify the penalty. The Tribunal noted that the appellant did not contest the denial of CENVAT credit and interest. The main issue was whether the penalty could be imposed under Rule 15(2) of the CENVAT Credit Rules, 2004, and Section 11AC of the Act.

Issue 2: Interpretation of Rule 15(2) and Section 11AC
Rule 15(2) mandates penalty for wrong CENVAT credit due to fraud, collusion, willful misstatement, or contravention with intent to evade duty. Section 11AC specifies that penalties are for deliberate deception to evade duty. The Tribunal found that the Revenue failed to prove the allegations against the appellant. The appellant disclosed the irregular credit in their returns and did not use it for duty payment. The Tribunal concluded that the irregular credit was not due to fraudulent intent. Citing the Rajasthan Spinning and Weaving Mills case, the Tribunal emphasized that penalties under Section 11AC are for deliberate deception. Since the conditions for penalty imposition were not met, the Tribunal set aside the penalty.

Conclusion:
The Tribunal ruled in favor of the appellant, setting aside the penalty imposed. The judgment highlighted the importance of proving fraudulent intent for penalty imposition under Rule 15(2) and Section 11AC. The case underscored the significance of disclosing irregularities and lack of fraudulent intent in determining penalty liability.