2021 (3) TMI 236 - HC - Central Excise

Levy of penalty u/r 15(1) of the CENVAT Credit Rules, 2004 - reduction in quantum of penalty imposed under Rule 26(2) (i) (ii) of the Central Excise Rules, 2002, when no discretion is provided in the said Rule - reversal of ineligible CENVAT Credit taken by the assessee - Rule 14 of the CENVAT Credit Rules, 2004 -whether the Tribunal was justified in interfering with the order-in-original and reducing the penalty levied by the adjudicating authority? - HELD THAT - It is no doubt true that the Tribunal has got discretionary power to interfere with the order of the adjudicating authority in the matter of reduction of the quantum of penalty which has been imposed by the adjudicating authority. But, however the exercise of discretion should be with sound reasons and cannot be arbitrary or whimsical. On perusal of paragraph 9 of the impugned order passed by the Tribunal, we find that the Tribunal has not assigned any acceptable reasons as to why the penalty imposed on M/s.Endeavour Industries Limited should be reduced from ₹ 50 lakhs to ₹ 12.50 lakhs, on M/s.Future Tech Industries Limited should be reduced from ₹ 50,00,000/- to ₹ 12,50,000/-, on M/s.Victoria Steel Enterprises Limited should be reduced from ₹ 80,00,000/- to ₹ 20,00,000/- and on M/s. Sujana Steel Products Ltd., should be reduced from ₹ 1 Crore to ₹ 25,00,000/-. The only finding that the Tribunal has recorded in paragraph 9 of the impugned order is that apparently there is no revenue loss to the Department. The availment of credit by the five entities, namely, M/s.Endeavour Industries Limited, M/s.Future Tech Industries Limited, M/s.Victoria Steel Enterprises Limited, M/s.Omnicron Bio-Genesis Industries Ltd. and M/s.Sujana Metal Products Limited was not authorized and illegal because this credit was based on invoices without actual movement of goods. It may be a fact that those five entities have not utilized the credit to discharge their duty burden in respect of other transaction. But that cannot be the reason for reduction of the penalty, especially when the amount which was availed as credit remained with the five entities over a period of time until it was reversed. Apart from that, the Tribunal would say that there is no revenue loss because M/s.Sujana Metal Products Limited have reversed the credit, that can hardly be a mitigating factor for reduction of penalty on the five entities because those entities were well aware that the transaction was a 'circular transaction' and credit was availed on invoices without movement of goods - the exercise of discretion by the Tribunal for reduction of penalty is perverse and unsustainable and accordingly, the same is set aside - the issues are answered in favour of the revenue. Recovery of CENVAT Credit - HELD THAT - The factual position being that M/s.Sujana Metal Products Limited having already reversed the credit of ₹ 8,21,75,955/-, once more to call upon them to reverse an equivalent amount would not be permissible in law - the finding rendered by the Tribunal in the impugned order is confirmed - this issue decided against Revenue. Appeal allowed in part.

Summary

Issues:
Reduction of penalty under Rule 15(1) of CENVAT Credit Rules, 2004
Reduction of penalty under Rule 26(2)(i) & (ii) of Central Excise Rules, 2002
Upholding order that ineligible CENVAT Credit need not be reversed

Analysis:
The High Court of Madras heard appeals filed by the revenue challenging a common order passed by the Customs, Excise & Service Tax Appellate Tribunal. The substantial questions of law raised included the correctness of reducing penalties under Rule 15(1) of CENVAT Credit Rules, 2004, Rule 26(2)(i) & (ii) of Central Excise Rules, 2002, and the requirement to reverse ineligible CENVAT Credit as per Rule 14 of CENVAT Credit Rules, 2004.

The Court examined whether the Tribunal was justified in reducing the penalties imposed by the adjudicating authority. It was noted that the entities involved in the case had availed credit without utilizing it for discharging liabilities, leading to a circular transaction. The Tribunal's discretionary power to reduce penalties was questioned, emphasizing the need for sound reasons and non-arbitrary decisions. The Court found the Tribunal's reasoning for penalty reduction lacking and set aside the decision, stating that the exercise of discretion was unsustainable.

Regarding the issue of reversing ineligible CENVAT Credit, the Tribunal had upheld the decision of the adjudicating authority not to recover credit from one of the entities. The Court reviewed the facts and confirmed the Tribunal's finding, stating that requiring the entity to reverse credit again would not be permissible in law.

In conclusion, the High Court partly allowed the appeals, ruling in favor of the revenue on the reduction of penalties but against the revenue on the issue of reversing ineligible CENVAT Credit. No costs were awarded in the judgment.