2009 (9) TMI 350 - AT - Central Excise

Interest and Penalty- Cenvat credit- The appellant has taken cenvat credit on capital goods received for installation of their plant and machinery. In the present case, the appellants have apparently taken the credit which was not admissible to them. Held that-We have carefully considered the submissions made from both sides. In the present case, the appellants have apparently taken the credit which was not admissible to them. There is no dispute about reversal of the credit. It was submitted on behalf of the appellant that the credit wrongly taken has been reversed on being pointed out by the Department. The credit was not utilized as they were yet to commence production. Further, there is a clear finding by the Commissioner that the credit taken by the appellant has not been utilized, and the same has been reversed immediately on being pointed out by the Department. Under these circumstances, the question of applying provisions of Section 11A for demand of duty, short levy or non levy does not arise. Consequently, the question of recovery of interest for such short levy or non levy demand does not arise. Allow the appeal with consequential relief. The stay petition is also disposed of.

Summary

Issues:
1. Cenvat credit wrongly taken and interest demand.
2. Penalty imposition for alleged wrongful credit.
3. Applicability of Rule 14 of Cenvat Credit Rules and Sections 11A and 11AB of the Central Excise Act.

Analysis:
1. The appellant took cenvat credit on capital goods but did not utilize it as production had not started. The Department pointed out the error, and the appellant immediately reversed the credit. A show cause notice was issued for wrongly taking the credit, demanding interest and imposing a penalty. The appellant argued that since the credit was not utilized, interest and penalty were not justified, citing relevant case laws. The Department contended that Rule 14 of Cenvat Credit Rules mandates interest payment for wrongly taken credit. The tribunal found that the credit was indeed taken wrongly but not utilized, and was reversed promptly upon detection by the Department. As the credit was not utilized for duty payment, provisions of Section 11A for demand of duty did not apply, hence no interest recovery was warranted.

2. The tribunal noted that the appellant's action was a misunderstanding, not an attempt to evade duty. Since the credit was not utilized, and there was no intention to derive benefit, the tribunal held that no penalty was warranted. The appellant's reliance on relevant case laws supported the argument that penalty imposition was not justified in this scenario.

3. The tribunal considered the applicability of Rule 14 of Cenvat Credit Rules and Sections 11A and 11AB of the Central Excise Act. It was determined that since the credit was not utilized and promptly reversed upon detection, the provisions for interest recovery under Section 11A did not apply. The tribunal's analysis focused on the specific circumstances of the case, where the appellant's misunderstanding led to the wrongful credit but without any intention to evade duty. Consequently, the tribunal allowed the appeal, providing consequential relief and disposing of the stay petition.