2010 (4) TMI 285 - HC - Central Excise

Cenvat Credit / Modvat Credit use of electricity produced by the assessee captively for the plant as well as in the residential area of the refinery. while disallowing the credit, assessee was asked to pay the penalty of Rs. 15 Lacs Held that - that the assessee is not entitled to avail the Cenvat credit to the extent of excess electricity consumed in the residential area of the Refinery. - penalty is not leviable on appellant/assessee, particularly when in large number of other cases, on account of conflict of views expressed by various Tribunals/High Court, the assessees have also succeeded. - No penalty is imposable on the assessee, in view of the facts of this case as there was no fraud committed by it

Issues:
1. Modvat credit denial for captive electricity use.
2. Justification for invoking extended period of limitation.
3. Imposition of penalty under Rule 173Q.
4. Setting aside penalty for a public sector undertaking.
5. Applicability of penalty based on intention to evade duty.

Modvat Credit Denial:
The appellant, engaged in manufacturing petroleum products, filed an appeal against the denial of Modvat credit by the Customs, Excise, and Service Tax Appellate Tribunal. The denial was based on the use of electricity generated by the appellant, which was consumed in the residential area of the refinery. The Tribunal upheld the denial and imposed a penalty of Rs.15 lacs. The appellant claimed credit under notification No.67/95-CE for raw materials used in the manufacturing process, but the credit was denied due to the electricity consumption in the residential colony.

Extended Period of Limitation:
The Court considered whether the Tribunal was justified in invoking the extended period of limitation despite the department's awareness of the appellant's benefit under Notification No.67/95-CE. The appellant argued against the imposition of penalty, citing the case of Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-III. The Tribunal's decision to impose the penalty equivalent to the confirmed duty was challenged by the appellant.

Imposition of Penalty and Setting Aside for Public Sector Undertaking:
The Tribunal's imposition of a penalty under Rule 173Q read with Section 11AC of the Central Excise Act, 1944 was questioned regarding the appellant's intention to evade duty. The Court deliberated on whether the penalty should be set aside entirely considering the appellant's status as a public sector undertaking and the absence of fraudulent intent. The appellant's counsel argued against the penalty, while the revenue's counsel supported the Tribunal's decision.

Applicability of Penalty Based on Intention to Evade Duty:
After hearing arguments from both parties, the Court concluded that the appellant was not entitled to avail Cenvat credit for excess electricity consumed in the residential area. However, the Court referred to the judgment in Maruti Suzuki Ltd.'s case, stating that penalties should not be levied in cases where there is no fraudulent intent. Consequently, the Court decided against the appellant on one question and in favor of the appellant on the other two questions, ruling that no penalty would be imposed due to the absence of fraud. The appeal was partly allowed, modifying the lower authorities' orders to exempt the appellant from any penalty.

This comprehensive analysis of the judgment addresses the issues raised in the case, providing a detailed overview of the Court's decision and the legal principles applied.

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