2023 (7) TMI 1173 - AT - Central Excise

Levy of penalty u/r 15 (2) of CCR 2004 - passing on incorrect cenvat credit without applying the formula as set out in Rule 3 (7) (a) of Cenvat Credit Rules, 2004 with respect to clearances made from 100% EOU - deliberate non-mentioning that the goods originated from 100% EOU and as thus passed on excess duty to the buyers - HELD THAT - It can be seen that the provision u/r 15 (2) of CCR, speaks about wrongful availment and utilization of cenvat credit. The appellant being a dealer has not availed or utilized the credit. Further it is also stated that the manufacturer shall be liable to pay penalty. This means that the manufacturer or the service provider who avails the credit wrongly or utilizes the credit wrongly is held liable to pay penalty for such wrongful act. There is no allegation in the SCN that the appellant availed credit or utilized the same. In such circumstances, the penalty imposed cannot sustain. The impugned order is set aside. Appeal allowed.

Summary

Issues:
The issues involved in this case are the contravention of Rule 3 (7) (a) of Cenvat Credit Rules, 2004 regarding passing incorrect cenvat credit without applying the formula, and the imposition of penalty under Rule 15 (2) of CCR 2004.

Contravention of Rule 3 (7) (a) of Cenvat Credit Rules:
The appellant, a 100% EOU Depot, had taken dealer registration to pass cenvat credit to buyers. It was alleged that the depot was passing incorrect cenvat credit without applying the required formula as per Rule 3 (7) (a) of Cenvat Credit Rules, 2004 for clearances made from 100% EOU. The original authority held that the depot deliberately did not mention that the goods originated from 100% EOU, resulting in excess duty being passed on to buyers. A penalty of Rs.2,92,019/- was imposed under Rule 15 (2) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) upheld this decision. However, the appellant argued that the provision of Rule 3 (7) (1) does not apply to them as a depot, and the show cause notice invoked the wrong provisions of law, making the penalty unsustainable.

Imposition of Penalty under Rule 15 (2) of CCR 2004:
The penalty imposed on the appellant was under sub rule (2) of Rule 15 of CCR 2004, which provides for penalties on those who wrongfully avail or utilize credit. The appellant contended that they had not availed or utilized credit for duty discharge but had only issued cenvatable invoices. Citing the case of B. Lakshmichand Vs GOI - 1983 (12) ELT 322 (Mad.), the appellant argued that the penalty was not sustainable. The rule specifies penalties for wrongful availment and utilization of cenvat credit, which did not apply to the appellant as a dealer.

Decision:
The penalty was imposed under Rule 15 (2) of Cenvat Credit Rules, which pertains to wrongful availment and utilization of cenvat credit, specifically by manufacturers or service providers. As the appellant, being a dealer, had not availed or utilized the credit, the penalty could not be sustained. The order was set aside, and the appeal was allowed with consequential relief, if any. The judgment was pronounced in court on 27.07.2023.