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2023 (7) TMI 43 - AT - Central ExciseCENVAT Credit - duty paying invoices - debit entries made in CENVAT account along with document on the basis of which such debit entry was made is sufficient to satisfy the requirement under Rule 9 of CCR, 2004 - demand of duty on engines with interest and the equal penalty imposed under sec. 11AC of the Central Excise Act, 1944. Whether the appellant is liable to pay interest for the delay in payment of duty on engines? - Whether the penalty imposed under Sec. 11AC of the Central Excise Act, 1944 in regard to non-payment of duty on engines is sustainable? - HELD THAT - The demand of duty on engines has been raised on the appellant invoking Rule 12BB(1) of the Central Excise Rules, 2002 r/w section 11A(4) of Central Excise Act, 1944. The demand of interest is raised invoking section 11AA of the Central Excise Act, 1944 - Rule 12BB is a facility given to LTU to defer the payment of excise duty on the intermediate goods cleared to the sister units. When the engines were cleared and stock transferred from the Hosur Unit to the appellant unit, the excise duty was not paid by the Hosur unit. Rule 12BB allows this facility of clearances without payment of duty on complying the condition that the intermediate goods have to be cleared or used further in the manufacture of finished products by the recipient unit and such finished products should be cleared within a period of six months. In the present case, it is an admitted fact that the condition has not been satisfied. The appellant is therefore liable to pay duty on the engines. It is also an admitted fact that there is delay in making the payment. Rule 12BB not only defers the payment of duty but also shifts the liability on the recipient unit. The Rule itself states that if the condition is not satisfied the duty along with interest has to be paid by the recipient unit - there are no grounds to interfere with the demand of interest. Penalty under section 11AC of the Central Excise Act, 1944 for short-payment of duty on engines - HELD THAT - Availment of credit is a right accruing on fulfilment of conditions. Rule 12BB offers a facility of deferred payment of duty. It is postponement of the liability to pay duty. Rule 12BB cannot stand on its own as it does not completely waive the liability to pay duty. It only defers it - the duty demand, in the present case, is on the engines. The duty liability for manufacture and clearance of engines is on the Hosur unit and not on the appellant. Only because appellant opted for the facility of Rule 12BB, the duty burden is shifted to the appellant unit. In such circumstances, when the duty liability is paid with interest, the penalty levied under Sec. 11AC is unwarranted. In the peculiar facts of this case, we are of the considered opinion that the penalty imposed requires to be set aside. Denial of CENVAT Credit - HELD THAT - As per Rule 12BB, the burden to pay the duty on the stock transferred goods is shifted to the recipient unit. The stock transferred goods are referred to as intermediate goods in Rule 12BB. The word intermediate goods is used in the Rules for sake of convenience taking into the varieties and variable complexities of materials that may require to be stock transferred in the process of manufacture of products. This cannot mean that engines which is otherwise an input for manufacture of Earth Moving Machine, loses its nature of being an input by opting Rule 12BB. We do not find any logic or legality in this view of the department. Other ground on which the credit is denied is that there are no duty paying documents - HELD THAT - Only if the engines are stock transferred on payment of duty to the Hosur unit, the appellant will receive duty paid invoices. While following the procedure under Rule 12BB, there is no occasion to pay duty to Hosur unit and thus no occasion to receive duty paid documents. After paying the duty on the engines, the appellant has availed credit by making debit entry in the CENVAT register. Rule 12A provides for the method of removing inputs as such under cover of a transfer challan for compliance of sub-rule (5) of Rule 3 of CENVAT Credit Rules, 2004 and then avail credit in CENVAT register. When Rule 12BB allowed removal of engines without payment of duty to the sister concern, under the cover of transfer challan and when the duty on the engines is not disputed, there are no reason to disallow the appellant the substantive right of credit - The department has raised this demand of duty on engines for not having followed Rule 12BB and then denied credit for having followed Rule 12BB, which appears to be rightly unreasonable and unjustified - credit allowed. Appeal partly allowed.
Issues Involved:
1. Demand of duty under Rule 12BB of CER along with interest. 2. Denial of credit of duty paid under Rule 12BB on clearance of intermediate products (engines). 3. Imposition of interest and penalty. Summary of Judgment: Issue 1: Demand of Duty and Interest under Rule 12BB of CER The appellants, engaged in manufacturing Earth Moving Machinery, received engines from their sister unit without payment of duty under Rule 12BB of CER, 2002. The finished goods were not cleared within six months as required, resulting in the payment of duty and interest. The Tribunal upheld the demand for interest, stating that Rule 12BB allows deferred payment of duty but shifts the liability to the recipient unit if conditions are not met. The duty and interest were rightly demanded as per Rule 12BB and Section 11AA of the Central Excise Act, 1944. Issue 2: Denial of Credit of Duty Paid on Intermediate Products The department denied CENVAT credit on the duty paid for engines, alleging they were intermediate goods, not inputs. The Tribunal found this view illogical, stating that engines, though termed intermediate goods under Rule 12BB, are inputs for manufacturing Earth Moving Machinery. The Tribunal held that the credit is eligible as the duty on engines was paid, and the appellant followed the procedure under Rule 12A of CCR, 2004. Issue 3: Imposition of Interest and Penalty The Tribunal set aside the penalty imposed under Section 11AC of the Central Excise Act, 1944. It reasoned that Rule 12BB, being a self-contained code, does not explicitly invoke Section 11AC for penalty. The appellant paid the duty and interest before the issuance of the Show Cause Notice and informed the department, fulfilling the conditions of Section 11A(2) of the Act, which precludes the issuance of a notice and imposition of penalty. Conclusion: 1. The duty demand on engines is sustained. 2. The demand of interest on the duty demand is sustained. 3. The penalty imposed under Section 11AC is set aside. 4. The denial of credit and the associated demand, interest, and penalty are set aside. The appeal is partly allowed with consequential relief as per law.
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