PENALTY UNDER CENVAT CREDIT RULES

[Dr. Sanjiv Agarwal]

Confiscation and Penalty (Rule 15)

Rule 15 of CENVAT Credit Rules, 2004 deals with imposition of penalty for wrongly availing CENVAT Credit or without taking reasonable steps to ensure that duty or tax has been paid or for contravention of rules. In cases where assesses claim or avail CENVAT Credit but where in fact they are not entitled to avail credit, penalty would generally be levied. However, in genuine case of ambiguity or confusion or where interpretation is involved, penalty may not be levied if the action is bonafide. In case of dispute relating to bonafide interpretation of CENVAT rules, imposition of penalty is not justified as was held in AMIIGO Brushes Pvt. Ltd. v. CCE, Vadodara-I 2005 (8) TMI 109 - CESTAT MUMBAI wherein penalty levied was set aside.

Rule 15(3) deals with on taking CENVAT Credit wrongly and Rule 15(4) deals with taking and utilising wrongly. Thus from CENVAT point of view, taking wrongly or taking and utilising wrongly are both punishable offences.

• If any person takes CENVAT Credit in respect of input or capital goods wrongly or without taking reasonable steps to ensure that appropriate duty on the said input or capital goods has been paid as indicated in the document accompanying the input or capital goods or contravenes any of the provisions of these rules in respect of any input or capital goods then all such goods shall be liable to confiscation and such person shall be liable to penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or ten thousand rupees whichever is greater.

• In a case, where the CENVAT Credit in respect of input or capital goods has been taken or utilised wrongly on account of fraud, wilful misstatement, collusion or suppression of facts or contravention of any of the provisions of the Excise Act, or the rules made thereunder with intention to evade payment of duty then, the manufacturer shall also be liable to pay penalty in terms of the provisions of Section 11AC of Central Excise Act.

• If any person takes CENVAT Credit in respect of input services wrongly or without taking reasonable steps to ensure that appropriate service tax on the said input service has been paid as indicated in the document accompanying the input services or contravenes any of the provisions of these rules in respect of any input service, then such person, shall be liable to a penalty which may extend to an amount not exceeding ten thousand rupees.

• In a case, where the CENVAT Credit in respect of input services has been taken or utilised wrongly by reason of fraud, collusion, wilful misstatement, suppression of facts or contravention of any of the provisions of the Finance Act, or of the rules made thereunder with intention to evade payment of service tax then, the provider of output service shall also be liable to pay penalty in terms of Section 78 of the Finance Act.

In Sumeet Industries Ltd. v. CCE, Surat 2003 (10) TMI 160 - CESTAT, MUMBAI, it was held that power to levy of penalty is not a crop provided to officers to let loose in all transgressions. Penalty should not be imposed in ordinary course unless it is established that there is a deliberate defiance of law or dishonest conduct or a conscious disregard to an obligation.

In Hawkins Cookers Ltd. v. CCE, Ludhiana 2013 (7) TMI 307 - CESTAT NEW DELHI, assessee had availed Cenvat credit on duty actually passed by registered dealer, which was more than that actually paid by manufacturer. Though invoices issued by registered dealer referred to manufacturer’s invoices (as they were not enclosed) assessee was not in position to know whether higher credit had been passed on. In view of requirements of Rules 9(4) and 9(5) of Cenvat Credit Rules, 2004, it was held that burden of proof of admissibility of Cenvat credit and

that it was correctly taken, was on manufacturer taking such credit. Hence, as it was for assessee to ensure that duty paid mentioned in invoices issued by registered dealer was on pro-rata basis, he was not eligible for Cenvat credit, and for its recovery extended period was applicable. However in such circumstances assessee would not be liable for penalty under Rule 15(2) of Cenvat Credit Rules, 2004.

In Jubilant Organosys Ltd. v. CCE, Vadodara 2014 (2) TMI 567 - CESTAT AHMEDABAD, where there was wrong payment of amount which was short paid made by the assessee for the period before issue of show cause notice without waiting for proceedings, it was held that it was only a bona fide mistake which had resulted in short levy, therefore, no penalty was warranted.

In Perstrop Chemicals India Pvt. Ltd. v. CCE, Daman 2014 (2) TMI 568 - CESTAT AHMEDABAD, where assessee had removed some of their inputs to their sister concern by paying duty on the transaction value instead of reversing the Cenvat credit, it was held that the assessee did not gain any benefit by undervaluing the inputs and did not take credit of the amount for the goods which were diverted by the sister unit and had no intention to evade duty, therefore, penalty was not sustainable.

In Areva T & D India Ltd. v. CCE (LTU), Chennai 2010 (7) TMI 381 - CESTAT, CHENNAI, where assessee had paid service tax even though same was not leviable at that point of time and subsequently took Cenvat credit of tax paid, it was held that assessee did not disclosed the fact of taking credit to authorities and there was no bona fide belief that assessee was entitled to credit. Therefore, extended period of limitation was held to have rightly been invoked.

In CCE & C, Surat I v. Chadarakanta Dyeing & Printing Mills 2010 (12) TMI 70 - GUJARAT HIGH COURT, it was held that rule 15 of Cenvat Credit Rules is invokable only when credit is taken or wrongly utilized on account of fraud, wilful misstatement, collusion or suppression of facts etc.

In CCE v. Sudarshan Cables Industries 2011 (8) TMI 895 - Allahabad High Court , it was held that there was conflicting opinion of Benches of Tribunal, due to which it could not be said that Cenvat credit had been wrongly taken or was taken in contravention of provision of rules. Rule 15 of Cenvat Credit, 2004 being subordinate legislation cannot impose penalty over and above penalty provided under Section 11AC of Central Excise Act, 1944. Accordingly no penalty was imposed in above case.

In CCE & Service Tax v. Bill Forge (P.) Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT, it was held that assessee (manufacturer) had wrongly availed Cenvat credit on capital goods, but before credit was taken or utilized, mistake was brought to its notice assessee accepted the mistake and reversed the entry for the same, therefore there was no liability to pay interest under Section 11AB.

In CCE and Service Tax, LTU, Bangalore v. Bharat Electronics Ltd  2011 (3) TMI 512 - KARNATAKA HIGH COURT, it was held that Amendment though retrospective, penalty being penal in character cannot be retrospectively imposed, according to Rule 15 of Cenvat Credit Rules, 2004.

Where credit was taken but not utilized as it was subsequently held to be disallowed, it was held that interest under Rule 14 was leviable from the date of utilization of credit and not from the date of entry in RG-23 and hence demand of interest was set aside (Noolani Tex Prints v. CCE, Jaipur-II 2007 (9) TMI 96 - CESTAT, NEW DELHI)

General Penalty (Rule 15A)

W.e.f. 1-3-2008, if any person contravenes any provisions of the CENVAT Credit Rules for which no specific penalty has been prescribed, a general penalty of an amount upto Rs. 5000 can be levied.

In CCE, Pune-I v. Panse Autocomp Pvt. Ltd. 2007 (10) TMI 489 - CESTAT, MUMBAI , where wrong availment of 100 percent was made instead of 50 percent permissible, it was held that penalty under rule 14 was not imposable in view of absence of ingredients mentioned in Section 11AC of Central Excise Act for imposition of penalty.