2006 (4) TMI 35 - AT - Central Excise

Central Excise Cenvat/Modvat Interest and penalty for wrong availment of credit on capital goods Where penalty was waived in absence of demand for duty, distinguished as there was direct nexus between duty demand and penalty

Summary

Issues:
1. Imposition of penalty and demand of interest without a duty demand in the show cause notice.
2. Applicability of penalty under Section 114A of the Customs Act.
3. Nexus between duty demanded and penalty imposed.
4. Validity of the demand of interest and penalty under Rule 12 and Rule 13 of the Cenvat Credit Rules, 2002.

Analysis:
1. The appeal involved a dispute regarding the imposition of penalty and demand of interest by the Commissioner (Appeal) without a duty demand in the show cause notice. The appellant argued that without a duty demand, the penalty and interest were not justified. The appellant relied on a case law to support their argument, emphasizing that penalty should have a quantitative nexus with the duty demanded. However, the department contended that the order was legal and sustainable.

2. The Tribunal considered the case law cited by the appellant where a penalty was imposed under Section 114A of the Customs Act without demanding duty under Section 28(2). The Tribunal noted that Section 114A mandates that the person liable to pay duty or interest as determined under Section 28 is also liable to pay a penalty equal to the duty amount or interest determined. The Tribunal highlighted the direct nexus between duty demanded and penalty imposed, emphasizing that the penalty should not exceed the duty amount.

3. The Tribunal examined the specifics of the case where the appellants had wrongly availed Cenvat credit on capital goods in excess of the eligible amount and later reversed it. The show cause notice clearly indicated the duty amount and interest proposed to be demanded. The Tribunal found that the imposition of penalty and interest was in accordance with Rule 12 and Rule 13 of the Cenvat Credit Rules, 2002. The penalty imposed was within the limits specified by the rules and the interest demanded was justified based on the circumstances.

4. Considering all arguments and the relevant provisions, the Tribunal concluded that the impugned order was legally correct and sustainable. The show cause notice adequately established the liability of the appellant, and the penalty imposed had a direct nexus with the duty demanded. Therefore, the Tribunal dismissed the appeal, upholding the demand of interest and penalty as per the Cenvat Credit Rules, 2002.