2022 (10) TMI 800 - AT - Central Excise

Levy of equal penalty imposed under Section 11AC of the Central Excise Act, 1944 - availment of wrong credit on input services used in the Co-generation plant for generation of electricity which was being wheeled out to T.N.E.B. - input services used for manufacture of Ethyl Alcohol - extended period of limitation - HELD THAT - On perusal of records, it is seen that though audit was conducted in the year August 2008 the show cause notice has been issued much later after a delay of 4 years on 17.07.2012. It is seen that the appellant has paid up the duty immediately when the audit had pointed out the defect of availing wrong credit. Even then, the department has taken a period of 4 long years to issue the show cause notice. It is stated in the show cause notice that appellant has suppressed facts with intention to evade payment of duty. Apart from this allegation there is no positive act of suppression brought out by the Department. There were conflicting views as to whether credit is eligible on input services used for generation of electricity that is sold outside, the appellant cannot be burdened with the guilt of suppression of facts with intent to evade payment of duty. The issue being interpretational in nature and as the department had collected all the details of availment of credit from the accounts maintained by the appellant, the penalty imposed in this regard is unwarranted - the penalty imposed with regard to duty liability of the input tax credit availed in respect of electricity (Co-generation plant) requires to be set aside. CENVAT credit of input service availed for manufacture of exempted goods - Ethyl Alcohol - only argument put forward by the Ld. Counsel for appellant is that they had availed credit by inadvertent mistake - HELD THAT - The said mistake would not have come to light but for the audit conducted by the Department. There are no sufficient grounds for setting aside penalty on input service tax credit in respect of Ethyl Alcohol. The impugned order is modified to the extent of setting aside the penalty imposed in regard to credit availed in respect of input services used in the co-generation plant for generation of Electricity sold outside - Penalty imposed in regard to input service tax credit on the services used in manufacture of Ethyl Alcohol is upheld. The appeal is partly allowed.

Summary

Issues:
1. Penalty imposed for availing wrong cenvat credit on input services used in co-generation plant for electricity generation.
2. Penalty imposed for availing cenvat credit on input services used for manufacturing exempted product, Ethyl Alcohol.

Analysis:

Issue 1: Penalty for availing wrong cenvat credit on input services for electricity generation:
The appellant, engaged in manufacturing, availed cenvat credit on input services used in the co-generation plant for electricity generation, which was wheeled out. The audit revealed this incorrect credit availing, leading to the appellant reversing the credit. Subsequently, a show cause notice was issued after a significant delay, proposing recovery of wrongly availed credit, interest, and penalty under Section 11AC of the Central Excise Act, 1944. The appellant contested the penalty, arguing that they promptly paid the duty upon identification of the error and that there was confusion regarding the eligibility of credit for electricity used in co-generation plants. The issue was settled by the Apex Court, clarifying that credit is not eligible when electricity is sold outside. The tribunal held that as the issue was interpretational, and the appellant acted on a bona fide belief during the confusion period, the penalty for suppression of facts to evade duty was unjustified. Consequently, the penalty for availing credit on electricity generation input services was set aside.

Issue 2: Penalty for availing cenvat credit on input services for Ethyl Alcohol manufacturing:
Regarding the availing of credit on input services for manufacturing Ethyl Alcohol, an exempted product, the appellant inadvertently availed a small amount of credit. The appellant argued that this mistake was unintentional and would not have been detected without the audit. The tribunal found insufficient grounds to set aside the penalty for availing credit on input services for Ethyl Alcohol production. Therefore, the penalty for availing credit on services used for Ethyl Alcohol manufacturing was upheld.

In conclusion, the tribunal partly allowed the appeal by setting aside the penalty imposed for availing credit on input services used in the co-generation plant for electricity generation while upholding the penalty for availing credit on services used in manufacturing Ethyl Alcohol. The decision was made based on the interpretational nature of the issues and the circumstances surrounding the credit availing for both situations.