2004 (1) TMI 219 - AT - Central Excise

Summary

Issues:
1. Imposition of penalty for availing ineligible Modvat credit
2. Consideration of conduct and circumstances for penalty imposition
3. Validity of penalty imposition for availing credits resulting in goods cleared without duty payment
4. Calculation of penalty amount
5. Confirmation of interest from the date of credit utilization

Analysis:

1. The appellants availed Modvat Credit of duty paid on a Bill of Entry, including Basic Customs Duty & CVD. Upon realizing the ineligibility of the Basic Customs Duty credit, they reversed the amount equivalent to it. Subsequently, penalty of Rs. 26 lakhs was imposed, along with interest, under Rule 57-I(4) and 57-I(5) read with Section 11AB.

2. The Tribunal noted that penalty imposition requires consideration of conduct and circumstances, not merely because it is provided in the rules. Referring to a Supreme Court case, it was highlighted that the assessing authority must determine a reasonable penalty amount based on the facts of each case. In this instance, despite the reversal of credits upon detection, the penalty was deemed necessary due to the clearance of goods without duty payment.

3. The Tribunal observed that the order indicated not only the availing of credits but also the clearance of goods without duty payment. The plea of inadvertence was rejected, considering the status of the assessee. While upholding the penalty imposition, the Tribunal acknowledged the timely reversal of credits and reduced the penalty to Rs. 5 lakhs based on the circumstances.

4. Regarding interest, it was deemed necessary to confirm it from the date of credit utilization, not from the entry in the records. The incorrect credit entry was considered a book entry and could be corrected if not debited against clearance. Therefore, interest was to be calculated from the date of credit utilization.

5. In conclusion, the appeal was partially allowed, with the penalty amount reduced to Rs. 5 lakhs and interest confirmed from the date of credit utilization. The Tribunal's decision reflected a balanced consideration of the conduct of the appellants and the circumstances surrounding the availing of ineligible credits.