2008 (2) TMI 440 - HC - Central Excise

Cenvat/Modvat credit - Stock transfer - Held that - it is apparent that one unit of the respondent-company manufacturers ingots and sends them to rerolling division for further conversion to re-rolled products of various sizes and the DGCI authorities having found the undervaluation of the goods which are sent from the first unit to the second unit, recovered differential duty and subsequently, the revenue proceeded against the assessee on the ground that an amount of ₹ 3,37,989/- being the credit was wrongly taken in violation of the provisions of Rule 7(b) of Cenvat Credit Rules, 2002 r/w Section 11AC of the Central Excise Act - in the absence of any substantial question of law raised in this appeal and in view of the failure to show that the respondent-company has involved in any fraud or suppression of facts, we have no hesitation to hold that the order of the Tribunal does not suffer from any illegality or infirmity and hence, the appeal is liable to be dismissed - decided against appellant.

Summary

Issues:
- Appeal under Section 35G of the Central Excise Act, 1944 against the order passed by the Customs, Excise & Service Tax Appellate Tribunal.
- Allegation of undervaluation of captively consumed goods and wrongful Cenvat credit.
- Reduction of penalty by the Commissioner (Appeals).
- Tribunal's decision based on Karnataka Soaps and Detergents Ltd. case.
- Appeal filed by the Commissioner of Customs and Central Excise, Hyderabad.

Issue 1: Appeal against Tribunal's Order
The judgment pertains to an appeal under Section 35G of the Central Excise Act, 1944 against the order passed by the Customs, Excise & Service Tax Appellate Tribunal. The appellant, who is the Excise authority, alleged under valuation of goods sent from one unit to another within the respondent-company. The department detected the undervaluation, and the respondent paid the differential duty, later taking Cenvat credit. The Revenue proceeded against the respondent for wrongly taking the credit, imposing penalties and demanding interest. The Commissioner (Appeals) modified the penalty, reducing it to Rs. 50,000, but upheld the original order. Subsequently, the respondent approached the tribunal.

Issue 2: Allegation of Undervaluation and Wrongful Cenvat Credit
The Tribunal, in line with the Karnataka Soaps and Detergents Ltd. case, noted that the respondent had promptly paid the differential duty upon detection of undervaluation by DGCI officers. The respondent had taken Cenvat credit before a show cause notice was issued, leading to the allegation of wrongful credit under Rule 7(b) of Cenvat Credit Rules, 2002. The Tribunal found the exercise to be revenue neutral, without any intention to evade central excise duty, and allowed the appeal. The Commissioner of Customs and Central Excise, Hyderabad, filed an appeal against this decision.

Issue 3: Tribunal's Decision and Legal Analysis
Upon reviewing the material and the impugned order, the High Court observed that the respondent's units were involved in manufacturing and converting goods. The DGCI authorities had detected undervaluation, leading to the recovery of differential duty. The Revenue alleged wrongful credit under Rule 7(b) of Cenvat Credit Rules, 2002, along with penalties and interest. The Tribunal's reliance on the Karnataka Soaps and Detergents Ltd. case was noted, where it was held that in cases of stock transfer, the prohibition under Rule 7(1)(b) does not apply even if additional duty becomes recoverable due to fraud or suppression. The High Court found no illegality or infirmity in the Tribunal's order, as there was no evidence of fraud or suppression by the respondent. Therefore, the appeal was dismissed, with no order as to costs.