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2019 (1) TMI 1226 - AT - Central ExciseDemand of Interest and penalty - excess availment of CENVAT Credit - excess availed CENVAT Credit reversed prior to its utilisation - removal of inputs as such - Held that - It is not in dispute that the inputs which were received by the appellant and on which they have taken CENVAT Credit in the first place were for use in manufacture of the final products by the appellant. Therefore, at that stage, it cannot be said that the credit has been wrongly availed. It would have been a different case if they are availed CENVAT Credit on some inputs on which they could not have availed CENVAT credit at all. Such case would have been squarely covered under Rule 14 and Rule 15. The inputs are used for the purposes other than manufacture, without maintaining separate accounts for such inputs but after reversing, a proportionate amount of CENVAT Credit availed on them and this cannot be considered as removal of inputs as such. the term (factory or premises) does not appear to have been defined in this sub rule. Therefore, all that can be concluded is that if inputs on which credit has been taken or removed for other than the purposes for which credit was taken, proportionate amount of CENVAT Credit needs to be reversed. It is undisputed that the appellant in this case has done so. Under these circumstances, it is hard to say that the reversal of CENVAT Credit under Rule 3(5) by the appellant of the proportionate amount of credit taken on the inputs used for purposes other than the manufacture, amounts to incorrect availment of CENVAT Credit, as conceived under Rule 14 of CCR 2004. The amount of credit reversed by the appellant on their own is a reversal under Rule 3(5) of CCR 2004 and not a wrong availment of input credit as contemplated in Rule 14 of CCR 2004 - the demand of interest under Rule 14 and imposition of penalty under Rule 15 in the particular factual matrix, not sustainable and need to be set aside. Appeal allowed - decided in favor of appellant.
Issues:
- Appeal against Order-in-Original regarding reversal of CENVAT Credit on inputs used for purposes other than manufacture of final products - Liability of interest and penalty under Rule 14 and Rule 15 of CCR 2004 - Applicability of time bar and suppression of facts in the demand - Interpretation of Rule 3(5) of CCR 2004 regarding reversal of CENVAT Credit on inputs removed for other purposes Analysis: 1. The appeal was filed against Order-in-Original challenging the reversal of CENVAT Credit on inputs used for purposes other than final product manufacture. The appellant had reversed CENVAT Credit on such inputs, but the department demanded interest and penalty under Rule 14 of CCR 2004, alleging wrongful availment of credit. 2. The appellant argued that no penalty should be imposed as they had reversed the CENVAT Credit before utilization, citing various case laws in support. They also contended that the demand was time-barred as the reversal details were disclosed in their monthly returns, and penalty under Rule 15 was not applicable due to no suppression of facts. 3. The Department reiterated the lower authority's findings on interest liability for unutilized CENVAT Credit. Referring to CBEC Circular and a Supreme Court judgment, they argued that interest is recoverable even if credit is not utilized. The Department emphasized the importance of Rule 14 and Rule 15 in such cases. 4. The Tribunal examined whether the CENVAT Credit was wrongly taken or utilized for other purposes. It was crucial to determine if the inputs were initially intended for manufacturing final products. The Tribunal analyzed Rule 3(5) of CCR 2004, which requires the reversal of credit on removed inputs. The term "factory or premises" was not defined, leading to the conclusion that proportionate credit reversal is necessary for such cases. 5. Ultimately, the Tribunal held that the appellant's reversal of CENVAT Credit under Rule 3(5) was not a wrongful availment as per Rule 14. In the specific factual context, the demand for interest and penalty was deemed unsustainable. The impugned order was set aside, and the appeal was allowed, emphasizing the correct interpretation of Rule 3(5) in the given scenario.
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