2020 (10) TMI 376 - AT - Central Excise

Imposition of penalty - CENVAT Credit - electricity sold by the Respondent to the Electricity Board - reversal of CENVAT credit on inputs used in the plant for generating power that was partly sold to the Electricity Board - HELD THAT - It is clear from a perusal the documents enclosed with the cross-objections, particularly the letter dated January 25, 2012 sent by the Respondent to the Superintendent of the Excise Department - The Supreme Court in CHANDRAPUR MAGNET WIRES (P) LTD. VERSUS COLLECTOR OF C. EXCISE, NAGPUR 1995 (12) TMI 72 - SUPREME COURT and COMNR. OF CENTRAL EXCISE CUSTOMS VERSUS M/S. PRECOT MERIDIAN LTD. 2015 (11) TMI 323 - SUPREME COURT held that reversal of credit means that the party has not availed the input service credit. Such being the position, the imposition of penalty of ₹ 30,00,000/- upon the Respondent in respect of the electricity sold to the Electricity Board is bad in law - cross-objections is allowed.

Summary

Issues:
Appeal against Commissioner's order on CENVAT credit demand.
Cross objections on penalty imposition.

Analysis:
1. The appeal was filed by the Commissioner of Central Excise challenging the order not confirming the demand of CENVAT credit of specific amounts. Two cross objections were filed by the Respondent, a manufacturing company availing CENVAT credit on inputs, capital goods, and input services. The Tribunal dismissed the appeal and cross objections initially.

2. The Respondent filed an Excise Appeal before the High Court, contesting the dismissal of cross objections. The High Court directed a fresh hearing for the cross objections, leading to a reevaluation of the case.

3. The issue revolved around the Respondent availing CENVAT credit on inputs used in a Captive Power Plant for generating power consumed in the factory, transferred to sister concerns, and sold to an Electricity Board. The Department objected to the credit availed on electricity transferred and sold, resulting in show cause notices for recovery.

4. The Commissioner's order dropped a portion of the demand based on a Supreme Court decision but disallowed credit on electricity sold outside, imposing a penalty. Both the Department and the Respondent appealed the decision, with the Tribunal rejecting the Department's appeal and the Respondent's cross objections initially.

5. The Respondent argued that the reversal of credit on a proportionate basis equated to non-availment of credit, citing relevant legal precedents. The Tribunal found the penalty imposition unjustified based on the regular reversal of credit for electricity sold to the Electricity Board.

6. Consequently, the Tribunal allowed the cross-objections, setting aside the penalty of &8377; 30,00,000 imposed on the Respondent. The decision was based on the legal principle that once proportionate reversal of CENVAT credit occurs, it signifies non-availment of the input service credit, rendering the penalty invalid. Other contentions raised in support of cross-objections were deemed unnecessary for examination.