2023 (1) TMI 453 - HC - Central Excise

Grant of relief by completely waiving off penalty by ignoring the fact that the offence of taking CENVAT Credit irregularly attracts penalty under Rule 15(1) of the CENVAT Credit Rules, 2004 - Input Service Credit to M/s. BRPL Jajpur for bringing Iron Ore slurry through pipeline from Barbil Plant to Jajpur Plant, when the services used for transporting such slurry are not entirely of the latter but relates to both the Plants - HELD THAT - On the question regarding wrongful availing of CENVAT Credit, it is seen that the CESTAT has ordered that the new plea of BRPL that they had only availed CENVAT Credit in the Books of Account at Jajpur requires to be verified/scrutinized by the Department independently, if such claim is filed by the Appellant . The Court is informed that since the Department had filed the present appeal more than seven years ago, it has still not undertaken the exercise of verification of the Books of Account of BRPL to ascertain in fact if it had availed CENVAT Credit at Jajpur without commencing manufacture of Iron Ore concentrate at Barbil - Without that exercise being completed, it will not be possible for the Department to ascertain if CENVAT Credit was wrongly claimed. This is one of the essential conditions for attracting the penalty under Rule 15(1) of the CENVAT Credit Rules. The answer to the question whether penalty under Rule 15(1) of the CENVAT Credit Rules would stand attracted automatically would hinge upon the finding of wrongful availment of CENVAT Credit. The question therefore at this stage would be premature. It may be added that it is the contention of the Assessee that there is some element of discretion available in the adjudicating officer to levy penalty under Rule 15(1) of the CENVAT Credit Rules. The Court notes at this stage that there is a distinction between the Rule 15(1) and Rule 15(2) of the CENVAT Credit Rules. As far as Rule 15(2) is concerned, the penalty is attracted in the event of there being misinformation, suppression of facts or fraud by the Assessee. Rule 15 (2) is admittedly not attracted in the present case - Rule 15 (1), on the other hand, indicates that the penalty thereunder stands attracted upon wrongful availment of CENVAT Credit without anything more having to be shown by the Department. The Court is of the view that the conclusion reached by the CESTAT in that regard is a plausible one and calls for not interference. Consequently, the conclusion that no penalty is imposable on BRPL for availing CENVAT credit at Jajpur Plant during the period from November, 2009 to August, 2010 also calls for no interference - Appeal disposed off.

Summary

Issues:
1. Admissibility of CENVAT Credit at Jajpur Plant.
2. Imposition of penalty under Rule 15(1) of the CENVAT Credit Rules.
3. Verification of wrongful availing of CENVAT Credit.
4. Discretion in levying penalty under Rule 15(1) of the CENVAT Credit Rules.

Admissibility of CENVAT Credit at Jajpur Plant:
The case involved a dispute regarding the admissibility of CENVAT Credit at Jajpur Plant by M/s. Brahmani River Pellets Limited (BRPL). The Department alleged that BRPL irregularly availed CENVAT Credit on Inputs, Capital Goods, and Input Services at Jajpur Plant, which were used in their beneficiation plant at Barbil. The Department contended that since the inputs were used at Barbil, which was exempted under a separate notification, CENVAT Credit was not admissible at Jajpur. The CESTAT held that CENVAT Credit would be admissible on the input service used in bringing Iron Ore Concentrate in slurry form from Barbil Plant to Jajpur Plant, and the Department needed to verify the claim independently. The Court found the CESTAT's conclusion plausible and declined to interfere, thus upholding the decision regarding the admissibility of CENVAT Credit at Jajpur Plant.

Imposition of Penalty under Rule 15(1) of the CENVAT Credit Rules:
The Department imposed a penalty of Rs.2 crores under Rule 15(1) of the CENVAT Credit Rules on BRPL for irregularly availing CENVAT Credit. The key issue was whether the penalty was justified. Rule 15(1) imposes a penalty upon wrongful availment of CENVAT Credit without further conditions. The Court noted that the penalty under Rule 15(1) is like a 'no fault liability' clause, where penalty stands automatically attracted. However, the Court emphasized that the finding of wrongful availment of CENVAT Credit was essential to impose the penalty. As the Department had not verified the claim independently, the Court deemed the question premature and declined to frame it, ultimately disposing of the appeal without imposing the penalty.

Verification of Wrongful Availing of CENVAT Credit:
The Court highlighted that the Department had not undertaken the verification of BRPL's Books of Account to ascertain the wrongful availment of CENVAT Credit at Jajpur Plant. Without completing this verification, it would be impossible to determine if the CENVAT Credit was wrongly claimed, which was crucial for attracting the penalty under Rule 15(1) of the CENVAT Credit Rules. The Court emphasized the necessity of this verification before imposing any penalty, indicating that the question of penalty was premature due to the lack of verification by the Department.

Discretion in Levying Penalty under Rule 15(1) of the CENVAT Credit Rules:
The Court discussed the distinction between Rule 15(1) and Rule 15(2) of the CENVAT Credit Rules concerning the imposition of penalties. While Rule 15(2) applies in cases of misinformation, suppression of facts, or fraud by the Assessee, Rule 15(1) imposes a penalty upon wrongful availment of CENVAT Credit without additional conditions. The Court noted that Rule 15(1) operates as a 'no fault liability' clause, where penalty stands automatically attracted. However, the Court highlighted that the discretion lies in determining the amount of penalty, which should not exceed the duty or service tax on the goods or services. In this case, Rule 15(2) was not applicable, and the Court emphasized the necessity of verifying the wrongful availment before imposing any penalty under Rule 15(1).

In conclusion, the High Court of Orissa addressed various issues related to the admissibility of CENVAT Credit, imposition of penalties under Rule 15(1) of the CENVAT Credit Rules, verification of wrongful availment of CENVAT Credit, and the discretion in levying penalties. The Court upheld the CESTAT's decision on the admissibility of CENVAT Credit at Jajpur Plant, emphasized the importance of verifying wrongful availment before imposing penalties, and clarified the distinction between Rule 15(1) and Rule 15(2) regarding penalty imposition. The Court declined to frame the questions regarding penalties due to the premature nature of the issue without independent verification.