2006 (7) TMI 48 - AT - Central Excise

Central Excise Cenvat/Modvat Assessee availed credit of duty paid capital goods and also claimed depreciation under I.T. Act, 1961 Assessee detected mistake and filed revised return for regularizing the availment of credit and took corrective action suo motu as per legal provisions Credit cannot be denied Penalty in SCN, not correct

Summary

Issues:
Appeal against disallowance of Modvat credit and penalty reduction.

Analysis:
The appellant, a spinning mill, appealed against the disallowance of Modvat credit amounting to Rs. 1,31,286 and a penalty reduction to Rs. 30,000. The issue dated back to the financial year 1995-96. The appellant had availed capital goods credit and claimed depreciation on the machinery inclusive of the excise duty amount, which contravened Rule 57R (5) of the Central Excise Rules. The original authority demanded the credit availed and imposed a penalty equal to that amount. The appeal was taken up for final disposal after dispensing with the stay application.

The appellant's consultant argued that the mistake in claiming depreciation was due to the auditors incorrectly including the excise duty in the income-tax return for the financial year 1995-96. The appellant rectified this mistake by filing revised returns in March 1998. The Department initiated inquiries only after the revised returns were filed. The consultant contended that the penalty imposed was not legal as the appellant was not properly notified of their penal liability.

The Senior Departmental Representative (SDR) cited a case law to support the Department's position, where a similar irregularity was premeditated. However, the tribunal found that the appellant had taken corrective action on their own accord by rectifying the mistake and regularizing the credit availed. The tribunal held that the appellant's eligibility for Modvat credit could not be questioned. Additionally, since the appellant was not properly notified of the penalty under the relevant rules, and the proposal in the show-cause notice was not legally correct, the tribunal set aside the impugned order and allowed the appeal with consequential relief, if any.

In conclusion, the tribunal found in favor of the appellant, setting aside the disallowance of Modvat credit and the penalty reduction, based on the appellant's corrective actions and the lack of proper notification regarding penalties. The tribunal emphasized the importance of complying with legal provisions and ensuring proper communication of penal liabilities to the concerned parties.