2024 (10) TMI 448 - AT - Central Excise

Levy of penalty - credit wrongly availed by the appellant but reversed along with interest when pointed out by Audit - intent to evade present or not - HELD THAT - It is true that a legal procedure imposed by a statute requires the assessee to be not complacent and avail credit or discharge duty diligently. But to err is human. The presumption of innocence is a background assumption of our legal system. It is also true that deterrence is the main object behind the imposition of penalty which may be due to a breach of statutory duty like the wrong availing of credit or non-payment of tax under the Act. However, it is seen that the SCN and OIO have chosen to penalise the appellant not on the ground of a technical breach but that of duty evasion, when no such case is made out. It is seen that Section 11A(6) states that in a case where duty is paid with interest before the issue of SCN penalty equivalent to 1% of such duty per month is to be calculated and paid from the month following the month in which duty was payable. The appellant has also in their prayer agreed to pay the same as was required to be done when they opted to reverse the credit and pay interest, before the issue of SCN. While there has been a breach of statutory provisions in this case, there is nothing to show that there was an intention to evade payment of duty. This being so the wrong penal provisions have been invoked leading to a disproportionate penalty. The impugned order hence merits to be modified to that extend and the penalty limited to that payable as per section 11A(6) of the Central Excise Act, 1944. The impugned order imposing equivalent statutory penalty is not proper. The impugned order is hence partly modified and the penalty is hence imposed in terms of sec. 11A(6) of the Central Excise Act, 1944 - Appeal allowed.

Summary

Issues:
Incorrect availment of CENVAT credit, imposition of penalty under Rule 15(2) of the CCR, demand for duty, reduction of penalty by Commissioner (Appeals), proportionality of penalty, intention to evade payment of duty, modification of penalty.

Analysis:
The appeal arose from an Order in Appeal passed by the Commissioner of GST & Central Excise, Chennai, regarding the incorrect availment of CENVAT credit by the appellant, a manufacturer of motor vehicle parts. The appellant had wrongly utilized CENVAT credit for duty payment, leading to a Show Cause Notice for reversing the credit, interest, and penalty. The Original Authority confirmed the demand and imposed penalties under relevant provisions. The Commissioner (Appeals) partly allowed the appeal by reducing the penalty and dropping the duty demand, prompting the appellant to appeal against the remaining penalty.

During the hearing, the appellant's Consultant argued that despite irregular credits, they had rectified the errors promptly upon discovery, citing cases where penalties were not levied if credits were reversed before the Show Cause Notice. The Authorized Representative for the respondent supported the impugned order. The Member (Technical) noted that while errors occurred, the appellant rectified them with interest upon audit discovery, emphasizing the importance of diligence in availing credits or discharging duties. The Member highlighted the need for a distinction between substantive violations and minor breaches, emphasizing the requirement for deliberate intent to evade tax for penalty imposition.

Referring to legal precedents, the Member stressed the judicial exercise of discretion in penalty imposition, especially in cases of deliberate defiance of law. The Member found that the penalty imposed was disproportionate to the offense, as there was no evidence of an intention to evade duty. Consequently, the Member modified the penalty to align with statutory provisions, limiting it to the amount payable under Section 11A(6) of the Central Excise Act, 1944. The appeal was allowed on these terms, with consequential relief as per law, and the impugned order was partly modified accordingly.