Cenvat credit towards exempted goods (Man Structural Pvt. Ltd. Vs. C.C.E. & S.T. Jaipur-I )

[Bimal jain]

When Cenvat credit towards exempted goods has been reversed after audit objection but before issuance of SCN, penalty under Section 11AC of the Excise Act read with Rule 15 of the Credit Rules is not imposable

Man Structural Pvt. Ltd. Vs. C.C.E. & S.T. Jaipur-I [2015 (11) TMI 664 - CESTAT NEW DELHI]

In the instant case, Man Structural Pvt. Ltd. (“the Appellant”) was engaged in manufacturing of dutiable as well as exempted final products. The Appellant has availed Cenvat credit on input/input services but was not maintaining separate accounts for inputs for manufacturing dutiable as well as exempted final products and also not paying amount equal to 10% of the value of the exempted goods at the time of clearance. During the course of audit, the Audit team pointed out the discrepancy and immediately on pointing out by the Audit team, the Appellant paid 10% of the value of exempted goods along with interest before issuance of SCN. Thereafter, the Department has issued SCN for imposing penalty under Section 11AC of the Excise Act read with Rule 15 of the Credit Rules.

The Hon’ble CESTAT, New Delhi relying upon the case of Commissioner of Central Excise, Ludhiana Vs. Sangrur Agro Ltd. [2010 (2) TMI 438 – PUNJAB & HARYANA HIGH COURT] dealing with reversal of amount under Rule 6(3)(b) of the Credit Rules, held that since there was no suppression of facts i.e. element of Section 11AC of the Excise Act is not present, said provisions are not applicable and consequently, penalty under Rule 15 of the Credit Rules is also not imposable. It was further held that when the Appellant had paid the entire duty along with interest before issuance of SCN, no penalty can be imposed under Section 11AC of the Excise Act and Rule 15 of the Credit Rules.

Our Comments:

There are plethora of judicial pronouncements in this regard wherein it has been repeatedly held that penalty cannot be imposed when amount of duty along with interest has been paid before issuance of SCN:

• Commissioner of C. Ex., Chandigarh Vs. Pepsi Foods Ltd. [2010 (12) TMI 15 - Supreme Court of India]

• Commissioner of Central Excise, Vapi Vs. Kisan Mouldings Ltd. [2010 (9) TMI 451 - SUPREME COURT OF INDIA]

Discussions to this article

[pankaj jain]

Dear sir, we have been audited before 10 days up to f.y. 2014-2015. We have taken wrong credit and we deals both exempted goods ( i.e. Sales of goods and as per negative list it is a exempted service as per department view) and taxable services. During audit the audit officials has raised the objection that, you have not maintained separate account for Canvat credit hence you have to pay 6% of exempted goods sales as per Rule 6(3) of Canvat credit Rule 2004. We have reversed all Canvat credit which we have taken wrong and revised our return including payment of wrong Canvat credit with interest. Now they are asking for penalty . As per aforesaid decision the penalty should not be impose on us. Should i deposit the penalty ?