2010 (1) TMI 460 - AT - Central Excise

Penalty - Irregular availment of credit - the respondents had taken excess CENVAT credit which was detected by the department later on. Upon such detection of wrong availment of excess credit, the respondents reversed the credits and also paid interest thereon. Show cause notice issued for imposing penalty. Held that - fraud, collusion, suppression of facts, willful mis-statement of facts or contravention of Rule with intent to evade duty. Where none of these are alleged in SCN, no penalty can be imposed u/s 11AC of the Act.

Summary

Issues:
- Imposition of penalties under Section 11AC of the Central Excise Act.
- Interpretation of Rule 15 of the CENVAT Credit Rules, 2004.
- Allegations and proof required for penalty under Section 11AC.
- Specificity of sub-rules in show-cause notices invoking Rule 15.

Analysis:
1. The appeals filed by the Revenue sought penalties on respondents under Section 11AC of the Central Excise Act for taking excess CENVAT credit. The respondents had reversed the credits and paid interest upon detection of the excess credit. Penalties were imposed by the original authority in various cases, either under Rule 15 of the CENVAT Credit Rules, 2004, or without reference to Section 11AC. In one case, a short-payment of duty was detected, and a penalty was proposed under Rules 25 and 27 of the Central Excise Rules, 2002, read with Section 11AC. The Commissioner (Appeals) set aside the penalties, citing a Tribunal decision that penalties cannot be imposed if duty is paid before the show-cause notice.

2. The Tribunal noted that the penalties imposed were not under Section 11AC in most cases, as the grounds for penalties specified in Section 11AC were not alleged in the show-cause notices. Allegations of fraud, collusion, suppression of facts, wilful misstatement, or contravention of rules are prerequisites for penalties under Section 11AC. Citing Supreme Court judgments, it was emphasized that penalties under Section 11AC are mandatory when the specified grounds are alleged and proven. As such grounds were not alleged by the Revenue, the appeals for penalties under Section 11AC were dismissed.

3. The respondents argued that the show-cause notices did not specify the sub-rule of Rule 15 invoked, which cover different factual situations. Citing a Supreme Court case, it was highlighted that specifying the exact nature of contravention in the notice is crucial. Failure to specify a particular sub-rule in the notice had led to penalties being set aside in a previous case. The Tribunal agreed with the respondents, emphasizing the importance of specificity in invoking Rule 15 sub-rules in show-cause notices.

4. In conclusion, the appeals by the Revenue were dismissed, and the cross objections were disposed of. The Tribunal's decision highlighted the necessity of alleging specific grounds for penalties under Section 11AC, and the importance of specifying the sub-rule of Rule 15 in show-cause notices for clarity and fairness in adjudication.